CSL Limited ABN: 99 051 588 348
ASX Full-year information 30 June 2007 Lodged with the ASX under Listing Rule 4.3A.
Contents Results for Announcement to the Market Additional Information Annual Financial Report (including Directors’ Report)
CSL Limited ABN: 99 051 588 348
Appendix 4E Full-year ended 30 June 2007 (Previous corresponding period: Year ended 30 June 2006)
Results for Announcement to the Market
$000
Operating 2006 $000
Contingent Consideration $000
Total 2006 $000
3,172,397
2,848,908
-
2,848,908
137,779
54,624
-
54,624
3,310,176
2,903,532
-
2,903,532
774,059
498,980
(328,515)
170,465
(234,760)
(148,087)
94,979
(53,108)
539,299
350,893
(233,536)
117,357
2007
Sales revenue Total other revenues Total revenue from continuing operations
Profit before income tax expense Income tax expense Net profit from continuing operations and Profit attributable to members of the parent entity
• • •
Revenues from continuing operations up 14.0% to $3,310,176,000. Profit from continuing operations after tax and net profit for the year attributable to members (excluding the recognition of the contingent consideration payable for the acquisition of Aventis Behring in the prior year) up 53.7% to $539,299,000. Profit from continuing operations after tax and net profit for the year attributable to members of the parent entity up 359.5% to $539,299,000.
Dividends Amount per security
Franked amount per security
Final dividend (declared subsequent to balance date)
55¢
27.5¢ *
Interim dividend paid on 13 April, 2007
49¢
Unfranked
Final dividend (prior year)
40¢
Unfranked
Record date for determining entitlements to the dividend:
21 September 2007
* Non-resident withholding tax is not payable on the unfranked component of this dividend as it will be declared to be wholly conduit foreign income.
Explanation of results For further explanation of the results please refer to the accompanying press release and “Review of operations” in the Directors’ report that is within the Annual Financial Report. Other information required by Listing Rule 4.3A The remainder of the information requiring disclosure to comply with Listing Rule 4.3A is contained in the attached Additional Information, Directors’ Report, Financial Report and media release.
Additional Information NTA Backing
Net tangible asset backing per ordinary security
30 June 2007
30 June 2006
$7.33
$6.43
Changes in controlled entities On 10 November 2006, the parent entity acquired 100% of the share capital of Zenyth Therapeutics Limited, a Biotechnology company, for a cash consideration of $103,711,000. The acquired business contributed revenues of $3,572,000 and a loss before tax of $5,349,000 to the Group for the period from acquisition to 30 June 2007. The parent entity did not dispose of any entities during the year. Audit report The audit report is contained in the attached Financial Report.
Peter R Turvey Company Secretary 22 August 2007
CSL Limited ABN: 99 051 588 348
Annual Financial Report for the year ended 30 June 2007
Directors' Report The Board of Directors of CSL Limited has pleasure in presenting their report on the consolidated entity for the year ended 30 June 2007. 1.
Directors The following persons were Directors of CSL Limited during the whole of the year and up to the date of this report: Miss E A Alexander, AM (appointed Chairman on 1 October 2006) Dr B A McNamee (Managing Director) Mr J H Akehurst Mr A M Cipa Mr I A Renard Mr M A Renshaw Mr K J Roberts, AM Professor J Shine, AO Mr P H Wade was the Chairman and a Director from the beginning of the financial year until his retirement on 30 September 2006. Mr D J Simpson was appointed a Director on 1 September 2006 and continues in office at the date of this report. Dr A C Webster was a Director from the beginning of the financial year until his retirement on 18 October 2006. Particulars of the directors' qualifications, experience, all directorships of public companies held for the past three years, special responsibilities, ages and the period for which each has been a director are set out in the Directors' Profiles section of the Annual Report.
2.
Company Secretary The company secretary is Mr P R Turvey, BA/LLB, MAICD. Mr Turvey was appointed to the position of company secretary in 1998 having joined the Company in 1992. Before joining CSL Limited he held the role of Company Secretary for five years with Biotech Australia Pty Ltd. Mr E H Bailey, B.Com/LLB, is Assistant Company Secretary and was appointed in 2001 having joined the Company in 2000. Before joining the Company he was a Senior Associate with Arthur Robinson & Hedderwicks.
3.
Directors' Meetings During the year, the Board held nine meetings. The Audit and Risk Management Committee met four times and the Human Resources Committee met three times. The Nomination Committee comprises the full Board and meets in conjunction with Board Meetings. The Securities and Market Disclosure Committee met 15 times and comprises at least any two Directors, one of whom must be a non-executive director. The attendances of directors at meetings of the Board and its Committees were: Board of Directors Attended P H Wade B A McNamee J Akehurst E A Alexander A M Cipa I A Renard M A Renshaw K J Roberts J Shine D Simpson A C Webster
4.
Audit and Risk Management Committee
Maximum
Attended
3 9 9 9 9 9 9 9 9 7 3
1
3 9 8 9 9 9 9 9 8 7 3
1
Attended for at least part in ex officio capacity
2
Attended for at least part by invitation
Maximum
1 42 4 42 4
3
Securities and Market Disclosure Committee
Human Resources Committee
Attended
Attended
3 14
1
4
12
4
1
Maximum
2 32 2
3
2 3
3 3
2
2
3
Principal Activities The principal activities of the consolidated entity during the financial year were the research, development, manufacture, marketing and distribution of biopharmaceutical and allied products. Page 1
Directors' Report 5.
Operating Results The Group’s net profit (excluding the recognition of the contingent consideration payable for the acquisition of Aventis Behring in the prior year) was up 54% to $539 million. Sales revenue was $3.2 billion up 11% on the previous year with research and development expenditure of $191 million up 19% on the previous year. Net operating cash flow was $481 million.
6.
Dividends The following dividends have been paid or declared since the end of the preceding financial year: 2005-2006 A final dividend for the year ended 30 June, 2006, of 40 cents per ordinary share, unfranked, was paid on 13 October, 2006, out of profits for that year as declared by the Directors in last year’s Directors’ Report. 2006-2007 An interim dividend on ordinary shares of 49 cents per share, unfranked, was paid on 13 April 2007. The Directors of the Company have declared a final dividend of 55 cents per ordinary share, franked to 27.5 cents per ordinary share, for the year ended 30 June 2007, to be paid out of profits for that year. In accordance with determinations by the Directors, the Company’s dividend reinvestment plan remains suspended. Total dividends for the 2006-2007 year are: On Ordinary shares $000 Interim dividend paid 13 April 2007 Final dividend payable on 12 October 2007
7.
89,608 100,673
Review of Operations CSL Behring sales grew 8% to $2.6 billion (13% in US dollar terms) when compared to the twelve months ended 30 June 2006. Solid performance across the plasma product portfolio in both core and specialty products have driven this growth. Carimune® / Sandoglobulin® (Intravenous Immunoglobulin), Vivaglobin® (subcutaneous Immunoglobulin) and Humate®/Haemate® (von Willebrand disease therapies) performed particularly well. During the period immunoglobulin prices in Europe improved, drawing closer to US pricing. The growth of Vivaglobin®, which was launched into the USA in March 2006, reflects patient demand given the unique convenience of the product. Humate® / Haemate®, with its high ratio of ristocetin co-factor, have been in strong demand by patients with a need for von Willebrand’s factor and Haemophilia-A patients in need of inhibitor therapy. Cytogam® ( Ctyomegalovirus immunoglobulin intravenous) acquired in December 2006 boosted sales in the second half of the fiscal year by approximately $20 million. CSL Behring’s sales growth, operational efficiency and product mix optimisation have underpinned the strong growth in operating margin (earnings before interest and taxes) of 28%, up from 20% in the prior comparable period. The improved margin includes the residual inventory benefit of $12 million ($50 million in the prior comparable period), arising from the purchase of Aventis Behring in 2004. A major element of the cost base, plasma, was kept well under control through improved plasma collection efficiency. CSL Bioplasma sales grew 10% to $211 million which is attributable to growth in plasma volumes fractionated in Australia. Strong albumin demand and improved pricing in Asia also added to the growth. CSL Biotherapies grew sales by 49% to $317 million reflecting a strong start to the school based GARDASIL® immunisation program in Australia. Sales of GARDASIL® in Australia during the period totalled $100 million. Other Revenue grew in line with the royalty received from Merck on the sales of GARDASIL®. The total GARDASIL® royalty received amounted to $86 million.
8.
Significant changes in the State of Affairs There were no significant changes in the state of affairs of the consolidated entity during the financial year not otherwise disclosed in this report or in the financial statements.
Page 2
Directors' Report
9.
Significant events after year end On 27 July 2007, the US Food and Drug Administration granted marketing approval for Privigen™ (10% liquid intravenous immunoglobulin) which is indicated for the use of patients diagnosed with primary immunodeficiency. Privigen™ is also indicated for the treatment of chronic immune thrombocytopenic purpura to rapidly raise platelet counts to prevent bleeding. Directors are not aware of any other matter or circumstance which has arisen since the end of the financial year which has significantly affected or may significantly affect the operations of the consolidated entity, the results of those operations or the state of affairs of the consolidated entity in subsequent financial years.
10. Likely Developments, Business Strategies and Future Prospects In the medium term, the Company will continue to grow through developing differentiated plasma products, expanding flu vaccine sales internationally, receiving royalty flows from the exploitation of the human papillomavirus vaccine by Merck & Co, Inc and the commercialisation of the Company’s ISCOMATRIX® adjuvant technology. Over the longer term the Company intends to develop new products which are protected by its own intellectual property which are high margin human health medicines marketed and sold by the Company’s global operations. Further comments on likely developments and expected results of certain aspects of the operations of the consolidated entity, and on the business strategies and prospects for future financial years of the consolidated entity, are contained in the Year in Review in the Annual Report and in section 7 of this Directors’ Report. Additional information of this nature can be found on the Company’s website (www.csl.com.au). Any further information of this nature has been omitted as it would unreasonably prejudice the interests of the consolidated entity if this report were to refer further to such matters.
11. Environmental Regulatory Performance The consolidated entity maintains management systems for health, safety and the environment that are consistent with internationally recognised standards to help ensure that its facilities operate to those standards to help protect its employees, contractors and the environment. The consolidated entity also provides appropriate training and resources so that its employees are equipped to work safely and to maintain incident-free workplaces. Additionally, the consolidated entity’s environmental obligations and waste discharge quotas are regulated under applicable Australian and foreign laws. Environmental performance obligations are monitored by the Board and subjected from time to time to government agency audits and site inspections. The consolidated entity also endeavours to minimise the environmental impact of its operations by recycling waste paper and other materials and by the responsible management and disposal of all product packaging. No environmental breaches have been notified by the Environmental Protection Authority in Victoria, Australia, or by any other equivalent interstate or foreign government agency in relation to the Company’s Australian or international operations during the year ended 30 June 2007.
12. Directors' Shareholdings and Interests At the date of this report, the interests of the directors who held office at 30 June 2007 in the shares, options and performance rights of the Company are set out in tables on pages 15 and 16 of this Report and Note 27 of the Financial Report.
13. Directors' Interests in Contracts Section 17 of this Report sets out particulars of the Directors Deed entered into by the Company with each director in relation to Board paper access (indemnity and insurance matters).
14. Share Options As at the date of this report, the number of unissued ordinary shares in the Company under options and under performance rights are set out in Note 26 of the Financial Statements. Holders of options or performance rights do not have any right, by virtue of the options or performance rights, to participate in any share issue by the Company or any other body corporate or in any interest issued by any registered managed investment scheme. The number of options and performance rights exercised during the financial year and the exercise price paid to acquire fully paid ordinary shares in the Company is set out in Notes 19 and 26 of the Financial Statements. Since the end of the financial year, no further options have been exercised. Since the end of the financial year, 20,800 performance rights have been exercised and shares issued as a result of the exercise. Page 3
Directors' Report 15. Remuneration Report This report summarises the director and executive remuneration policies and practices, including detailed remuneration outcomes for the 2007 financial year. The report has been prepared in accordance with the remuneration reporting requirements under section 300A of the Corporations Act 2001 and Corporations Regulation 2M.6.04 and details the remuneration arrangements for Key Management Personnel according to Accounting Standard AASB 124 Related Party Disclosures. Key Management Personnel comprise: all directors of CSL; and those individuals who have authority and responsibility for planning, directing and controlling the activities of the Company and the consolidated entity. Board and Human Resources Committee The Board has adopted a formal charter delegating certain of its responsibilities concerning human resources and remuneration to the Human Resources Committee. This charter can be found on the www.csl.com.au website under Corporate Governance; Board and Committee Charters. The responsibilities of the Human Resources Committee include: reviewing and monitoring the human resources strategic plan; reviewing and approving the corporate human resources policies; establishing a policy framework for employee and senior executive remuneration; monitoring and reviewing the Company’s performance management system; reviewing and recommending to the Board the terms relating to the Company’s employee share, option and performance right schemes; recommending to the Board individual senior executive remuneration packages and where appropriate, seeking independent advice on senior executive remuneration; recommending to the Board senior executive recruitment, retention and termination policies as well as succession planning strategies and policies; reviewing benchmarks against which senior executive salary reviews are made; and reporting to the Board any findings or recommendations of the Committee after each meeting. In accordance with the charter, the Board reserves responsibility for: the remuneration of non-executive directors; • setting the terms of employment and remuneration for the Managing Director; approving remuneration for senior executives; and the operation and policies relating to the Company's employee share, option and performance right schemes and succession planning. The Human Resources Committee comprises three members, all of whom are independent non-executive directors. These are: Mr Ken Roberts (Chairman); Mr John Akehurst; and Mr Maurice Renshaw Ms Alison von Bibra, General Manager – Human Resources, acts as Secretary of the Committee. The Board Chairperson may attend any meeting of the Committee in an ex officio capacity. The Managing Director, senior executives and professional advisors retained by the Human Resources Committee attend meetings by invitation. The Committee meets at the conclusion of the performance management process, at the conclusion of the succession planning process, prior to the allocation of long term incentives, and at other times as are required to discharge its responsibilities. Information about Committee meetings held during the year and individual directors' attendance at these meetings can be found in section 3 of this Directors' Report. Any recommendation made by the Human Resources Committee concerning an individual director or executive’s remuneration is made without that director or executive being present.
Page 4
Directors' Report Non-Executive Directors’ Remuneration The Board’s principal responsibilities are the oversight of the management of the Company and its strategic direction and approving the Company’s business strategies and objectives. Non-executive director remuneration is not linked to the Company’s short-term financial performance and these directors are not entitled to performance based remuneration or participation in the Company’s equity incentive plans. Non-executive directors are entitled to fixed fees having regard to their Board responsibilities, obligations on any of the four Board committees and the aggregate non-executive director remuneration limit approved by shareholders. Within this limit, the Board determines the fees payable to non-executive directors based on advice from professional advisors which takes into consideration fees payable to non-executive directors by comparable organisations as well as fee levels which the Board considers appropriate to attract and retain high quality non-executive directors. Currently, the Company's Constitution sets the maximum aggregate amount of remuneration which may be paid to nonexecutive directors at $1,500,000. Any increases to this sum must be approved by shareholders at a general meeting. In accordance with this, and in line with the growth of the Company and the spread of its operations in international locations, shareholders are being asked at the next Annual General Meeting to approve an increase in this amount to $2,000,000. This will allow the company to attract and retain Directors with the appropriate experience and skill to meet the ever-increasing challenges of international expansion. As outlined in the Constitution, remuneration for any extra services by individual directors or the reimbursement of reasonable expenses incurred by directors may also be approved by the Board from time to time. The table on page 10 of this report sets out the fees paid to non-executive directors and is based on the following NonExecutive Directors Committee Fees schedule. Non-Executive Directors Board and Committee Fees per annum effective 1 January 2006:
Chairman Members
Board 300,000 125,000
Audit & Risk Management Committee 30,000 12,500
Human Resources Committee 20,000 10,000
Nomination Committee -
Securities and Market Disclosure Committee -
The Chairmen and members of the Nomination Committee and the Securities and Market Disclosure Committee do not receive any additional fees for committee responsibilities. Non-executive directors participate in the Non-Executive Directors’ Share Plan approved by shareholders at the 2002 annual general meeting. Under the Non-Executive Directors’ Share Plan, non-executive directors are required to take at least 20% of their director’s fees in the form of shares in the Company. Shares are purchased on-market at prevailing share prices. These purchases are made by the Non-Executive Directors’ Share Plan administrator at pre-determined intervals. In addition to fees paid in cash or taken in the form of shares, non-executive directors also receive superannuation contributions equal to 9% of their fees. Non-executive directors were entitled to a retirement allowance as approved by shareholders in 1994 equal to the highest fees over any consecutive 36 months of service. If the director had served more than five years on the Board, they would receive another 5% of the base fee at the time of retirement for every additional year served, up to a limit of 15 years. The Board terminated this retirement plan as at 31 December 2003 and froze the retirement allowance as at that date. No nonexecutive director has accrued any entitlement to any retirement allowance since 31 December 2003. Executive Remuneration Policy The Company’s remuneration policy is designed to be competitive and equitable and to attract and retain high quality employees. The aim of the policy is to provide senior executives with an appropriate balance of fixed and performance related remuneration. Remuneration is set at levels competitive with market rates. The performance related remuneration ensures that a significant proportion of executive remuneration is at risk by linking reward to the achievement of personal and corporate objectives, and shareholder returns. The Human Resources Committee considers independent external advice in setting both the balance of fixed and performance related remuneration and the remuneration levels.
Page 5
Directors' Report Executive Remuneration Structure The Company’s remuneration structure comprises three core elements: fixed remuneration; short-term incentives; and long-term incentives. Together, these elements comprise an executive’s total potential remuneration. Broadly, an executive will have fixed remuneration and a short-term incentive percentage representing the executive’s potential short-term incentive as a percentage of fixed remuneration. Under the Company’s performance management system, this percentage ranges from 10% to 60% of fixed remuneration depending on an executive’s seniority level. During the 2007 financial year, executives were also able to participate in the Company’s long term equity incentive arrangements. In June 2006, the CSL Board approved new long-term incentive arrangements for equity grants that became effective in the 2007 financial year. The plan provisions are consistent with the rules of the CSL Performance Rights Plan approved by shareholders at the Annual General Meeting in 2003. The short-term and long-term incentive arrangements are discussed further on pages 6 to 8 of this Report. The proportion of performance related remuneration to an executive’s total potential remuneration is kept largely consistent for a given level of seniority, across all countries where CSL operates. As an executive’s seniority level increases, so do the incentive percentages and the proportion of performance related remuneration to that executive’s total potential remuneration. CSL’s performance management system is central to the management of performance related remuneration. The extent to which executives meet or exceed the performance objectives as set out in the performance management system influences the calculation of short-term incentives as well as executives’ ability to participate in the Company’s long-term incentive programs. Performance as measured under the performance management system is also taken into consideration in reviewing fixed remuneration. The total remuneration levels for executive Key Management Personnel are illustrated in the tables on pages 10 to 12 of this Report. The balance of fixed and performance related remuneration for executive Key Management Personnel is illustrated in the table on page 13 of this Report. Fixed Remuneration Depending on the country in which the executive is employed, an executive’s fixed pay is expressed as a “Total Employment Cost” (“TEC”) or as “salary plus benefits”. Where a TEC approach is adopted, an executive’s fixed remuneration comprises benefits the executive has elected to receive in lieu of salary inclusive of any associated costs such as fringe benefits tax and mandatory superannuation, with the balance paid as cash salary. Where a “salary plus benefits” approach is adopted, the salary is specified and the Company provides benefits to an executive consistent with the labour market practices in that jurisdiction. CSL’s reward strategy globally is to target a fixed remuneration market position at the median of the relevant comparator market, with Total Reward (including short-term incentives and long-term incentives) for stretch performance at the median percentile of the market. Executives who are working in a country other than their usual country of residence are eligible to receive benefits in accordance with the Company’s expatriate policies. CSL’s expatriate policies are intended to compensate an executive for the additional commitment and costs associated with working in a different country. Short-term Incentives Short-term incentives may be awarded to employees based on their annual performance as evaluated under the CSL Performance Management System. In relation to the performance management process, the Board approves the corporate objectives, strategic plans and financial budgets. The Board also approves the Managing Director’s specific performance objectives which reflect the Board approved corporate objectives, plans and budgets. The Managing Director specifically approves the performance objectives for other executives which represent a cascading set of objectives and activities of the corporate objectives. Formal review of progress against objectives is conducted twice annually with the full year review provided to the Board, for the Managing Director and his direct reports. Long-term Incentives Long-term incentives are reserved for employees who have performed to a required performance level and who are regarded as being of strategic and/or operational importance to the Company, and for prospective key employees. The Company used the CSL Performance Rights Plan approved by shareholders at the 2003 annual general meeting for this purpose during the financial year.
Page 6
Directors' Report Performance Rights and Performance Options As noted in the 2006 Annual Report, new arrangements for Long Term Incentive grants became effective in October 2006. Allocations to Executive Directors under the new arrangements, were approved by shareholders at the 2006 Annual General Meeting. As determined by the Board, the long-term incentive grants made to executives incorporated both Performance Rights and Performance Options (each with a different performance hurdle). The use of two types of is expected to align reward more closely with corporate performance, increase the market competitiveness of the total remuneration package, and facilitate the attraction and retention of high calibre executives. Each long-term incentive grant generally consists of 50% Performance Rights and 50% Performance Options. For a specified group of Senior Leadership Executives, a mix of 40% Performance Rights and 60% Performance Options was granted. This latter group includes the CEO and Managing Director and Executive Key Management Personnel. The Performance Rights are granted in accordance with an Allocation Target Range, based on the Executives seniority, job value and location, such that we are taking account of market conditions in each region of the world in which we recruit for talent. The performance hurdle attached to Performance Rights is a relative Total Shareholder Return (“TSR”) hurdle with a peer group of the companies comprising the ASX top 100 by market capitalisation (excluding companies with the GICS industry codes of commercial banks, oil and gas and metals and mining). The Peer Group for the October 2006 allocation was established on 2 October 2006, which was also the date of grant. Vesting will occur where the Company’s TSR ranking is at or above the 50th percentile. The Performance Options are issued for nil consideration with an exercise price equal to the volume weighted average CSL share price over the week up to and including the day of grant. The performance hurdle for the Performance Options is an earnings per share (EPS) measure. The initial target is 10% compound EPS growth per annum measured from 30 June in the financial year preceding the grant of options until 30 June in the financial year prior to the relevant test date. Either none or the portion of the Performance Options as shown in the table on page 15 and 16 are exercisable depending on whether this target is achieved. The Board considers that an EPS performance hurdle is appropriate since a key approved corporate objective is the pursuit of sustainable earnings growth. Performance Rights and Performance Options are issued for a term of seven years. Current offers provide for a portion becoming exercisable, subject to satisfying the relevant performance hurdle, after the second anniversary of the date of grant. Full vesting does not occur until fours years post grant date. If the portion tested at the applicable anniversary meets the relevant performance hurdle, that portion of rights and options vest and become exercisable until the expiry date. If the portion tested fails to meet the performance hurdle the portion will be carried over to the next anniversary and retested. After the fifth anniversary, any Performance Rights and Performance Options not vested will lapse. Importantly, there is an individual employee hurdle requiring an executive to obtain a satisfactory (or equivalent) rating under the Company’s performance management system for the financial year prior to exercise of the Performance Rights and Performance Options. There are no company provided loans as part of the current long-term incentive arrangements. Previous grants of Performance Rights were issued to executives dependent on an executive’s long-term incentive percentage and the Company’s share price. This plan also encompassed individual performance criteria. The Performance Rights were issued for no consideration. The minimum Performance Period was three years. If all eligible Performance Rights have not vested by the end of this period, performance may be reassessed at one-yearly intervals for up to a further two years. Any Performance Rights which remain unvested after the last reassessment will lapse. The performance hurdle for performance rights issued prior to October 2006 was defined so that 50% of Performance Rights vest at the 50th percentile, with the balance vesting on a straight line basis between the 50th and 75th percentile, where 100% of rights vest.
Page 7
Directors' Report SESOP II The Senior Executive Share Ownership Plan II (“SESOP II”) had previously been used for the purpose of delivering long-term incentives. SESOP II was approved by special resolution at the annual general meeting of the Company on 20 November 1997. Under this program, options were issued for a term of seven years and began to be exercisable, subject to satisfying the performance hurdle, after the third anniversary of the date of grant. An allocation could be fully exercisable after five years. The exercise price was calculated using the weighted average price over the 5 days preceding the issue date of the option. For the options to be exercisable, a performance hurdle relating to earnings per share for CSL ordinary shares had to be met. Specifically, for the period from the financial year preceding the grant of options until the financial year prior to the date of exercise, pre-abnormal earnings per share had to increase by seven percent compound per annum. Either none or all of the options were exercisable depending upon whether this target was achieved. In addition, there was also an individual employee hurdle requiring an executive to obtain for the financial year prior to exercise of the options, a satisfactory rating under the Company’s performance management system. Under the rules of SESOP II, participants could be provided with a loan to fund the exercise of the options. Consequently, no loan was made to the recipients of options until the option was exercised and no amounts were recorded in receivables until the option was exercised. Interest equivalent to the after-tax cash amount of dividends on the underlying shares (excluding the impact of imputation and assuming a marginal income tax rate of 46.5%) was charged on the loan. No options were granted under SESOP II during the 2007 financial year. During the 2006 fiscal year, the SESOP II loan terms were adjusted to enable the Company to seek loan repayment where the market value of the shares issued to an individual participant falls to 110% or less of the total exercise price. This mechanism ensures that the full loan amount remains recoverable by the Company. Relationship between Company Performance & Executive Remuneration Over the last five years, reward delivered under the long-term incentive component of executive remuneration has been dependent on CSL’s EPS growth or TSR performance. As outlined in the Long Term Incentive section of this report, the long-term incentive arrangements from the 2007 financial year will be measured on both the EPS growth and TSR performance of CSL. The table below illustrates the Company’s annual compound growth in basic earnings per share (EPS) for Options granted under SESOP and SESOP II with a 7% hurdle of annual compound growth and Performance Options granted under the Performance Rights Plan with a 10% hurdle of annual compound growth. Annual compound growth of EPS Option Allocation 2002 2003 2006
2005 23%
Financial Year 2006 30% 25%
2007 33% 30% 53%
To date each allocation of options has satisfied the performance hurdle before their expiry date. Accordingly, except for options lapsing in accordance with the Rules (eg termination of employment), all options that have met the time-related vesting requirements have vested. Since October 2003, the Company has provided long-term incentives using Performance Rights which have a TSR hurdle. During the 2007 financial year, four Performance Rights allocations (made in October 2003, December 2003, March 2004 and June 2004) were subject to testing. Both allocations satisfied the performance criteria and vested in full. The table below summarises the actual and prospective relative TSR performance over the Performance Period to date in respect of unvested Performance Rights. The data is indicative of results as if tested on 30 June 2007. Performance Right Issue October 2004 July and September 2005 March and April 2006 October 2006
Company TSR as at 30 June 2007 221% 208% 119% 62%
Indicative Percentile Rank1
Indicative Number of Rights Vesting1
95% 98% 96% 94%
100% 100% 100% 100%
1
All Performance Rights vest where CSL’s relative TSR is at the 75th percentile (i.e. where CSL’s TSR is higher than 75% of the peer group).
Page 8
Directors' Report Employment Contracts - Non Executive Directors Non-executive directors are subject to ordinary election and rotation requirements as stipulated in the ASX Listing Rules and the Company’s Constitution. Accordingly, there are no specific employment contracts with non-executive directors. Employment Contracts - Executive Key Management Personnel All executive Key Management Personnel are employed under a service contract. Each contract outlines the key terms of employment including the executive’s fixed remuneration. The potential short-term incentive may also be stipulated in the contract or be governed by the Company’s remuneration policy which governs the level of short-term incentives applicable to seniority levels. It is the Company’s general practice that employment contracts for executives do not have a fixed term. It is the Company’s policy that employment contracts for executives contain provisions for termination with notice or payment in lieu thereof and for termination by the Company without notice for serious misconduct and breach of contract. The notice period required to be given by the employee or the Company along with any termination payments to which they may be eligible are set out in the table below. Termination payments for all executives are expressed in months and calculated by reference to TEC or salary (excluding benefits) which the executive would have earned over that time. Executive Directors B A McNamee A M Cipa Key Management Personnel P Turner C Armit1 A Cuthbertson P Turvey A von Bibra T Giarla2 M Sontrop
Notice Period by Company 6 months 6 months
Notice Period by Employee 6 months 6 months
Termination Payments 12 months 12 months
6 months 6 months 6 months 6 months 6 months 6 months 6 months
6 months 6 months 6 months 6 months 6 months 6 months 6 months
12 months None 12 months 12 months 12 months 12 months 12 months
1 The Company and Mr C Armit entered into a fixed term contract beginning 14 November 2005 and ending 31 December 2007. The Company cannot terminate this agreement before 31 December 2007 except in the case of material under-performance whereupon 6 months notice is required, or termination for serious misconduct or breach of contract. 2 Mr T Giarla is currently on an international assignment contract. The term of the assignment is from 16 January 2006 to 1 February 2009 with an option to extend by 12 months by mutual agreement with the company. Should Mr T Giarla be made redundant during or at the conclusion of the assignment, a termination payment consisting of 1 year base salary (or US$300,000, whichever is greater), 100% of annual short-term incentive potential (or US$150,000, whichever is greater), health benefits for two years after termination date, and US$32,000 as compensation for other ongoing benefits. Resignation within the initial two years of the assignment or at the end of the assignment results in a termination payment as described above unless a suitable role is found in the United States.
Page 9
Directors' Report Directors’ Remuneration Short term benefits
Other Long Term
Post employment
Cash salary and fees5
Cash Bonus
$
$
NonMonetary Benefits $
Equity
Superannuation
Retirement Benefits
Long Service Leave
Termination Benefits
Performance Rights6
Options6
Total
$
$
$
$
$
$
$
-
132,834
-
1,075,240
233,651
4,293,118 3,873,662
Executive Directors Dr B A McNamee
2007
1,711,038
1,032,000
3,242
105,113
Managing Director
2006
1,542,374
1,500,000
17,695
42,060
-
160,629
-
610,904
-
A M Cipa
2007
672,554
290,400
9,180
55,206
-
40,233
-
455,051
85,566
1,608,190
Finance Director
2006
610,568
543,000
1,828
47,400
-
65,166
-
275,017
-
1,542,979
2007
263,750
-
-
23,738
-
-
-
-
-
287,488
Chairman
2006
145,000
-
-
13,050
-
-
-
-
-
158,050
P H Wade2
2007
81,750
-
-
-
611,550
-
-
-
-
693,300
Chairman (retired Sept 2006)
2006
275,000
-
-
24,750
-
-
-
-
-
299,750
J H Akehurst
2007
135,000
-
-
12,150
-
-
-
-
-
147,150
Non-executive director
2006
126,250
-
-
11,363
-
-
-
-
-
137,613
I A Renard
2007 2006
137,500 128,750
-
-
12,375 11,587
-
-
-
-
-
149,875 140,337
2007 2006
135,000 128,750
-
-
12,150 11,587
-
-
-
-
-
147,150 140,337
2007 2006
145,000 135,000
-
-
13,050 12,150
-
-
-
-
-
158,050 147,150
Non-executive director
2007 2006
135,417 -
-
-
12,188 -
-
-
-
-
-
147,605 -
D J Simpson3
2007
116,250
-
-
10,463
-
-
-
-
-
126,713
Non-executive Directors E A Alexander1
Non-executive director M A Renshaw Non-executive director K J Roberts Non-executive director Professor J Shine
Non-executive director
2006
-
-
-
-
-
-
-
-
-
-
DR A C Webster4
2007
40,353
-
-
3,632
227,522
-
-
-
-
271,507
Non-executive director Total of all Directors
2006
126,250
-
-
11,363
-
-
-
-
-
137,613
2007
3,573,612
1,322,400
12,422
260,065
839,072
173,067
-
1,530,291
319,217
8,030,146
2006
3,217,942
2,043,000
19,523
185,310
-
225,795
-
885,921
-
6,577,491
Page 10
Directors' Report Directors’ Remuneration (continued) 1
Miss E A Alexander, AM (appointed Chairman on 1 October 2006)
2
Mr P H Wade was the Chairman and a Director from the beginning of the financial year until his retirement on 30 September 2006.
3
Mr D J Simpson was appointed a Director on 1 September 2006 and continues in office at the date of this report.
4
Mr A C Webster was a Director from the beginning of the financial year until his retirement on 18 October 2006.
5
As disclosed on page 5 of this Report under the section titled “Non-Executive Director Remuneration”, non-executive directors participate in the NED Share Plan under which non-executive directors are required to take at least 20% of their fees in the form of shares in the Company which are purchased on-market at prevailing share prices. 6
The options and rights have been valued using a combination of the Binomial and Black Scholes option valuation methodologies as at the grant date adjusted for the probability of performance hurdles being achieved. This valuation was undertaken by PricewaterhouseCoopers. The amounts disclosed in remuneration have been determined by allocating the value of the options and performance rights evenly over the period from grant date to vesting date in accordance with applicable accounting standards. As a result, the current year includes options that were granted in prior years.
Page 11
Directors' Report Non Director Key Management Personnel Remuneration Short term benefits
Other Long Term
Post employment
Cash salary and fees1
Cash Bonus1
$
$
NonMonetary Benefits $
2007
836,526
839,863
2006
886,025
2007
Equity
Superannuation
Retirement Benefits
Long Service Leave
Termination Benefits
Performance Rights2
Options2
Total
$
$
$
$
$
$
$
3,219
118,019
-
70,069
-
394,670
112,417
2,374,783
886,683
34,384
78,696
-
85,192
-
209,144
158,340
2,338,464
402,144
111,800
40,050
36,925
-
13,226
-
105,189
17,901
727,235
2006
396,340
107,500
61,993
35,401
-
19,016
-
96,027
105,560
821,837
2007
553,104
181,598
34,195
41,035
-
29,473
-
208,088
74,712
1,122,205
2006
424,586
157,500
91,085
32,598
-
41,039
-
89,167
158,340
994,315
2007
475,821
213,400
80,742
87,317
-
38,080
-
171,532
55,253
1,122,145
2006
464,228
309,625
50,051
51,886
-
53,647
-
102,919
105,560
1,137,916
2007
335,964
127,995
17,378
16,606
-
16,225
-
92,290
35,839
642,297
2006
-
-
-
-
-
-
-
-
-
-
2007
436,969
150,696
-
39,858
-
16,384
-
101,994
59,316
805,217
2006
256,269
460,754
58,070
23,237
-
-
-
67,780
206,582
1,072,692
2007
338,114
74,000
58,978
28,411
-
19,824
-
45,844
29,969
595,140
2006
134,513
174,185
27,977
9,796
-
22,346
-
23,103
103,662
495,582
2007
3,378,642
1,699,352
234,562
368,171
-
203,281
-
1,119,607
385,407
7,389,022
2006
2,561,961
2,096,247
323,560
231,614
-
221,240
-
588,140
838,044
6,860,806
Key Management Personnel P Turner President - CSL Behring (based in United States) C Armit President - CSL Biotherapies (based in Australia) A Cuthbertson Chief Scientific Officer (based in Australia) P Turvey Company Secretary and General Counsel (based in Australia) M Sontrop3 General Manager, CSL Biotherapies Australia & New Zealand (based in Australia) T Giarla President - Bioplasma Asia Pacific (based in Australia) A von Bibra General Manager - Human Resource (based in Australia) Total Specified Executives 1
Cash salary and fees, cash bonuses and superannuation paid in foreign currency have been converted to Australian dollars at the year end exchange rate. Both the amount of remuneration and any movement in comparison to prior years may be influenced by changes in the respective currency exchange rates. 2
The options and rights have been valued using a combination of the Binomial and Black Scholes option valuation methodologies as at the grant date adjusted for the probability of performance hurdles being achieved. This valuation was undertaken by PricewaterhouseCoopers. The amounts disclosed have been determined by allocating the value of the options and performance rights evenly over the period from grant date to vesting date in accordance with applicable accounting standards. As a result, the current year includes options that were granted in prior years. 3
Ms M Sontrop became a member of Key Management Personnel during the 2007 financial year, therefore no amounts are disclosed for the 2006 financial year.
Page 12
Directors' Report Executive Key Management Personnel Fixed and Performance Remuneration Components Remuneration Components as a Proportion of Total Remuneration
Remuneration not linked to company performance1
Total Performance Related Remuneration Cash Based STI2
Executive Directors B A McNamee A M Cipa Key Management Personnel P Turner C Armit A Cuthbertson P Turvey M Sontrop T Giarla A von Bibra
Equity Based Performance Shares
Performance Options
Total
45% 48%
24% 18%
25% 28%
6% 6%
55% 52%
100% 100%
43% 68% 59% 61% 60% 61% 75%
35% 15% 16% 19% 20% 19% 12%
17% 15% 18% 15% 14% 13% 8%
5% 2% 7% 5% 6% 7% 5%
57% 32% 41% 39% 40% 39% 25%
100% 100% 100% 100% 100% 100% 100%
1
Remuneration not linked to company performance means fixed remuneration as outlined in the section “Executive Remuneration Structure” on page 6 of this Report and comprises cash salary, superannuation and non monetary benefits (including interest on loans if any).
As stated under the section “Fixed Remuneration” on page 6 of this Report, any recommendations concerning senior executive fixed remuneration levels are significantly influenced by the executive’s performance as assessed under the Company’s performance management system. 2
Cash based STI includes any payments based on the executive’s performance under the Company’s performance management system.
Page 13
Directors' Report Executive Key Management Personnel Performance Remuneration (A)
Short term incentive 2007 1
Executive Directors B A McNamee A M Cipa Key Management Personnel P Turner5 C Armit A Cuthbertson P Turvey M Sontrop T Giarla A von Bibra 1
Percentage Awarded1
Percentage Not Awarded1
100.0% 80.0% 100.0% 62.5% 87.5% 100.0% 87.5% 75.0% 50.0%
Accounting Values being amortised in respect of the 2007 equity grants in future years2
Remuneration consisting of options & rights
(B) Value of options & rights granted during 06/07, at grant date 3
(C) Value of options exercised during 06/07 at exercise date 4
(D)
Total of columns (B) to (C)
2008 $
2009 $
2010 $
2011 $
%
$
$
$
20.0%
531,445 194,518
384,290 140,658
199,517 73,028
39,392 14,419
30% 34%
1,548,147 566,652
1,208,250
1,548,147 1,774,902
37.5% 12.5% 12.5% 25.0% 50.0%
194,518 108,810 84,956 71,205 86,223 62,607
140,658 78,682 61,431 51,488 62,347 45,272
73,028 40,850 31,894 26,730 32,369 23,505
14,419 8,065 6,297 5,277 6,391 4,641
21% 17% 25% 20% 20% 20% 13%
566,652 316,973 247,483 207,422 251,172 182,382
1,994,800 343,200 228,800 806,634
566,652 1,994,800 660,173 476,283 1,014,056 251,172 985,998
803,616
Short term incentive awarded and not awarded relates to the period ended 30 June 2007 only. These amounts awarded are paid in full after 30 June.
As mentioned on page 6 of this Report under the section “Short-term incentives”, consistent with the philosophy of the short-term incentive percentage representing the potential short-term incentive, to be awarded 100% of short-term incentive, an executive is required to have exceeded all performance objectives. An executive who has obtained less than 100% of their incentive payment may have met all their objectives and exceeded some of their objectives but may not have exceeded all of the performance objectives. 2
The value has been determined at grant date and amortised in accordance with the applicable accounting standard requirements. The minimum value of the grant is $nil if the performance conditions are not satisfied.
3
Represents the value of options and rights that are granted to the person as part of their remuneration in the 2007 financial year. The value at grant date represents the accounting value of the grant.
4
Represents the value of options and rights that were granted to the person as part of their remuneration and that were exercised during the year. The value at exercise date has been determined by the share price at the close of business on exercise date less the option/right exercise price (if any) times by the number of options/rights exercised during 2007.
5
An additional bonus payment of 50% of annual fixed remuneration was granted.
Page 14
Directors' Report Executive Key Management Personnel Options and Rights Holdings Performance Rights
Executive Directors B A McNamee A M Cipa Key Management Personnel P Turner A Cuthbertson P Turvey C Armit M Sontrop T Giarla A von Bibra Total
Balance at 1 July 2006
Number Granted
Number Exercised
Balance at 30 June 2007
Number Vested during the year
147,500 70,000
15,640 5,720
(20,000)
163,140 55,720
70,000 40,000
54,350 25,350 27,350 21,850 13,450 12,850 4,800
5,720 3,200 2,500 2,100 2,540 1,840
(24,800) (11,100) (17,100) (8,400) (6,100) (1,500)
35,270 17,450 12,750 13,450 9,450 15,390 5,140
24,800 11,100 17,100 8,400 6,100 1,500
377,500
39,260
(89,000)
327,760
179,000
The terms and conditions of the Performance Rights granted in 2007 are: Terms and Conditions for Performance Rights grants during 2007 Grant Date
Tranche
Value per Right at Grant Date
First Exercise Date
Last Exercise Date
2 October 2006 2 October 2006 2 October 2006
1 2 3
42.59 39.96 37.40
2 October 2008 2 October 2009 2 October 2010
2 October 2013 2 October 2013 2 October 2013
Shares issued on Exercise of Performance Rights
Executive Directors B A McNamee A M Cipa Key Management Personnel P Turner C Armit A Cuthbertson P Turvey M Sontrop T Giarla A von Bibra
Date Performance Rights Granted1
Number of shares
Total
Paid $ per share
Unpaid $ per share
16 October 2003
20,000
20,000
-
-
15 December 2003 21 June 2004 15 December 2003 15 December 2003 21 June 2004 15 December 2003 21 June 2004 21 June 2004 21 June 2004
12,600 12,200 8,400 6,100 5,000 7,100 10,000 6,100 1,500
24,800 8,400
-
-
11,100
-
-
17,100 6,100 1,500
-
-
1 Refer to the table above for the balance of Performance Rights held by Key Management Personnel subsequent to exercise of the performance rights.
Page 15
Directors' Report
Options and Rights Holdings Options Balance at 1 July 2006
Number Granted1
Number Exercised
Number Lapsed / Forfeited
Balance at 30 June 2007
Number Vested during the year
Vested and exercisable at 30 June 2007
Executive Directors B A McNamee A M Cipa Key Management Personnel P Turner C Armit A Cuthbertson P Turvey M Sontrop T Giarla A von Bibra
25,000
52,920 19,380
25,000
-
52,920 19,380
-
-
30,000 50,000 30,000 20,000 31,600 58,500 18,480
19,380 10,840 8,460 7,080 8,580 6,240
40,000 15,000 10,000 21,600 35,000 13,200
-
49,380 10,000 25,840 18,460 17,080 32,080 11,520
15,000 10,000 15,000 10,000 21,600 9,000 13,200
15,000 -
Total
263,580
132,880
159,800
-
236,660
93,800
15,000
The terms and conditions of the Options granted in 2007 are:
Grant Date
Terms and Conditions for Options grant during 2007 Value per Option Tranche First Exercise Date at Grant Date
Last Exercise Date
2 October 2006
1
17.12
2 October 2008
2 October 2013
2 October 2006 2 October 2006
2 3
17.50 17.87
2 October 2009 2 October 2010
2 October 2013 2 October 2013
SESOP and SESOP II Options In relation to the 2007 financial year, the Company used the CSL Performance Rights Plan approved by shareholders at the 2003 annual general meeting for long term incentive purposes. Accordingly, no options were issued under SESOP II during the financial year. The last grant of options under SESOP II was made in July 2003. Shares Issued on Exercise of Options
Executive Directors B A McNamee A M Cipa Key Management Personnel P Turner C Armit A Cuthbertson P Turvey M Sontrop T Giarla A von Bibra
Date Options Granted1
Number of shares
Total
Paid $ per share
Unpaid $ per share
2 August 2000
25,000
25,000
$34.04
-
23 July 2002 23 July 2002 23 July 2002 20 June 2001 1 July 2003 23 August 2001 20 June 2001 1 July 2003
40,000 15,000 10,000 6,600 15,000 35,000 5,280 7,920
40,000 15,000 10,000
$27.97 $27.97 $27.97 $37.54 $12.19 $37.54 $37.54 $12.19
-
21,600 35,000 13,200
-
1
Refer to the table above for the balance of options held by Key Management Personnel subsequent to exercise of the options.
Page 16
Directors' Report
16. Other Transactions and Balances with Directors and other Key Management Personnel The directors and other key management personnel and their related entities have the following transactions with entities within the consolidated entity that occur within a normal employee, customer or supplier relationship on terms and conditions no more favourable than those which it is reasonable to expect the entity would have adopted if dealing at arm’s length in similar circumstances: The Company has a number of contractual relationships including property leasing and research collaborations with the University of Melbourne of which Mr Ian Renard is the Chancellor, Miss Elizabeth Alexander is the Chair of the Finance Committee and a member of the Council, and Dr Virginia Mansour (whose husband is Dr Brian McNamee) is a member of the Council.
17. Indemnification of Directors and Officers During the financial year, the insurance and indemnity arrangements discussed below were in place concerning directors and officers of the consolidated entity: The Company has entered into a Director's Deed with each director regarding access to Board papers, indemnity and insurance. Each Deed provides: (a) an ongoing and unlimited indemnity to the relevant director against liability incurred by that director in or arising out of the conduct of the business of the Company or of a subsidiary (as defined in the Corporations Act) or in or arising out of the discharge of the duties of that director. The indemnity is given to the extent permitted by law and to the extent and for the amount that the relevant director is not otherwise entitled to be, and is not actually, indemnified by another person or out of the assets of a corporation, where the liability is incurred in or arising out of the conduct of the business of that corporation or in the discharge of the duties of the director in relation to that corporation; (b) that the Company will maintain, for the term of each director's appointment and for seven years following cessation of office, an insurance policy for the benefit of each director which insures the director against liability for acts or omissions of that director in the director's capacity or former capacity as a director of the Company; and (c) the relevant director with a right of access to Board papers relating to the director's period of appointment as a director for a period of seven years following that director's cessation of office. Access is permitted where the director is, or may be, defending legal proceedings or appearing before an inquiry or hearing of a government agency or an external administrator, where the proceedings, inquiry or hearing relates to an act or omission of the director in performing the director's duties to the Company during the director's period of appointment. In addition to the Director's Deeds, Rule 146 of the Company’s Constitution requires the Company to indemnify each “officer” of the Company and of each wholly owned subsidiary of the Company out of the assets of the Company “to the relevant extent” against any liability incurred by the officer in the conduct of the business of the Company or in the conduct of the business of such wholly owned subsidiary of the Company or in the discharge of the duties of the officer unless incurred in circumstances which the Board resolves do not justify indemnification. For this purpose, “officer” includes a director, executive officer, secretary, agent, auditor or other officer of the Company. The indemnity only applies to the extent the Company is not precluded by law from doing so, and to the extent that the officer is not otherwise entitled to be or is actually indemnified by another person, including under any insurance policy, or out of the assets of a corporation, where the liability is incurred in or arising out of the conduct of the business of that corporation or in the discharge of the duties of the officer in relation to that corporation. The Company paid insurance premiums of $607,804 in respect of a contract insuring each individual director of the Company and each full time executive officer, director and secretary of the Company and its controlled entities, against certain liabilities and expenses (including liability for certain legal costs) arising as a result of work performed in their respective capacities, to the extent permitted by law.
Page 17
Directors' Report
18.
Auditor independence and non-audit services The company may decide to employ the auditor on assignments additional to their statutory audit duties where the auditor’s expertise and experience with the company and/or the consolidated entity are important. Details of the amounts paid or payable to the entity’s auditor, Ernst & Young for non-audit services provided during the year are set out below. The directors, in accordance with the advice received from the Audit and Risk Management Committee, are satisfied that the provision of non-audit services is compatible with the general standard of independence for auditors imposed by the Corporations Act 2001. The directors are satisfied that the provision of non-audit services by the auditor did not compromise the auditor independence requirements of the Corporations Act 2001 for the following reasons: •
all non-audit services have been reviewed by the Audit and Risk Management Committee to ensure that they do not impact the impartiality and objectivity of the auditor
•
none of the services undermine the general principles relating to auditor independence as set out in Professional Statement F1, including reviewing or auditing the auditor’s own work, acting in a management or a decision making capacity for the company, acting as an advocate for the company or jointly sharing economic risks and rewards. A copy of the auditors’ independence declaration as required under section 307C of the Corporations Act 2001 accompanies this Report. Ernst & Young and its related practices received or are due to receive the following amounts for the provision of non-audit services: Due diligence and completion audits
$16,000
Compliance and other audits
$78,425 $94,425
19. Rounding The amounts contained in this report and in the financial report have been rounded to the nearest $1,000 (where rounding is applicable) unless specifically stated otherwise under the relief available to the Company under ASIC Class Order 98/0100. The Company is an entity to which the Class Order applies.
This report has been made in accordance with a resolution of directors.
Elizabeth Alexander (Director)
Brian A McNamee (Director)
Melbourne 22 August 2007
Page 18
Auditor’s Independence Declaration to the Directors of CSL Limited In relation to our audit of the financial report of CSL Limited for the financial year ended 30 June 2007, to the best of my knowledge and belief, there have been no contraventions of the auditor independence requirements of the Corporations Act 2001 or any applicable code of professional conduct.
Ernst & Young
Denis Thorn Partner Melbourne 22 August 2007
Liability limited by a scheme approved under Professional Standards Legislation.
CSL Limited
Consolidated Income statement for the year ended 30 June 2007 Consolidated Group
Notes
2007 $000
Operating 2006 $000
Contingent Consideration (Note 5) 2006 $000
Total 2006 $000
Continuing operations Sales revenue
3,172,397
2,848,908
-
2,848,908
Cost of sales
3
(1,737,543)
(1,703,033)
-
(1,703,033)
Gross profit
1,434,854
1,145,875
-
1,145,875
Other revenues
3
137,779
54,624
-
54,624
Other income
3
3,275
2,081
-
2,081
Research and development expenses
(190,846)
(161,023)
-
(161,023)
Selling and marketing expenses
(373,692)
(339,863)
-
(339,863)
General and administration expenses
(192,123)
(161,197)
3
(45,188)
(41,517)
774,059
498,980
(328,515)
170,465
Income tax expense
4
(234,760)
(148,087)
94,979
(53,108)
Profit attributable to members of the Parent Company
21
539,299
350,893
(233,536)
117,357
Cents
Cents
Cents
Finance costs Profit before income tax expense
Earnings per share
(328,515)
(489,712)
-
(41,517)
Basic earnings per share
34
295.39
192.77
64.47
Diluted earnings per share
34
293.40
184.25
61.62
The above income statement should be read in conjunction with the accompanying notes.
1
CSL Limited
Income statement for the year ended 30 June 2007 Parent Company Notes
2007 $000
2006 $000
Continuing operations Sales revenue
3
485,100
346,822
Cost of sales
(293,663)
(171,356)
Gross profit
191,437
175,466
498,078
35,016
Other revenues
3
Other income
3
3,209
1,660
Research and development expenses
(91,759)
(79,509)
Selling and marketing expenses
(64,404)
(47,785)
General and administration expenses
(77,646)
(58,419)
Finance costs
3
Profit before income tax expense
(4,287)
(4,826)
454,628
21,603
Income tax expense
4
(16,498)
(5,569)
Profit attributable to members of the Parent Company
21
438,130
16,034
The above income statement should be read in conjunction with the accompanying notes.
2
CSL Limited
Balance sheets As at 30 June 2007
Consolidated Group
Notes
Parent Company
2007
2006
2007
2006
$000
$000
$000
$000
CURRENT ASSETS Cash and cash equivalents
6
480,237
753,694
-
177,290
Trade and other receivables
7
616,980
593,679
334,523
99,734
Current tax assets
16
-
6,889
-
6,889
Inventories
8
1,128,281
973,427
69,418
66,426
Other financial assets
9
594
7,872
-
-
2,226,092
2,335,561
403,941
350,339
Total Current Assets NON-CURRENT ASSETS Trade and other receivables
7
10,667
17,673
7,534
11,117
Other financial assets
9
13,808
4,728
1,341,701
1,232,935
Property, plant and equipment
10
858,894
816,336
323,474
268,881
Deferred tax assets
11
150,656
187,432
7,670
-
Intangible assets
12
927,594
820,841
9,425
20,000
Retirement benefit assets
13
11,983
3,514
7,887
1,840
Total Non-Current Assets
1,973,602
1,850,524
1,697,691
1,534,773
TOTAL ASSETS
4,199,694
4,186,085
2,101,632
1,885,112
CURRENT LIABILITIES Trade and other payables
14
439,510
388,979
513,731
688,999
Interest-bearing liabilities and borrowings
15
157,145
463,632
58,723
-
Current tax liabilities
16
97,801
88,038
2,368
-
Provisions
17
103,110
85,885
28,250
26,115
Deferred government grants
18
100
371
100
371
Retirement benefit liabilities
13
-
4,635
-
-
797,666
1,031,540
603,172
715,485
Total Current Liabilities NON-CURRENT LIABILITIES Interest-bearing liabilities
15
850,612
595,197
-
-
Non-current tax liabilities
16
-
5,043
-
-
Deferred tax liabilities
11
85,515
61,767
-
1,715
Provisions
17
107,623
408,053
5,681
5,223
Deferred government grants
18
4,961
4,093
4,961
4,093
Retirement benefit liabilities
13
84,468
90,588
Total Non-Current Liabilities
1,133,179
1,164,741
10,642
11,031
TOTAL LIABILITIES
1,930,845
2,196,281
613,814
726,516
NET ASSETS
2,268,849
1,989,804
1,487,818
1,158,596
1,023,941
994,101
1,023,941
994,101
33,104
13,351
-
-
EQUITY Contributed equity
19
Reserves
20
Retained earnings
21
1,435,279
1,051,470
430,773
151,144
23
2,268,849
1,989,804
1,487,818
1,158,596
TOTAL EQUITY
(190,371)
(55,767)
The above balance sheets should be read in conjunction with the accompanying notes.
3
CSL Limited
Statements of recognised income and expense for the year ended 30 June 2007 Consolidated Group
Notes Profit for the year
Exchange differences on translation of foreign operations, net of hedges Gains/(losses) on available-for-sale financial assets, net of tax Actuarial gains/(losses) on defined benefit plans, net of tax
20
2007
2006
2007
2006
$000
$000
$000
$000
539,299
117,357
438,130
16,034
(154,357)
116,691
-
-
20
3,058
(101)
3,058
21
7,044
(9,558)
4,033
1,437
Net income/(expense) recognised directly in equity
Total recognised income and expense for the year attributable to equity holders
Parent Company
23
(101)
(144,255)
107,032
7,091
1,336
395,044
224,389
445,221
17,370
The above statements of recognised income and expense should be read in conjunction with the accompanying notes.
4
CSL Limited
Cash Flow Statements for the year ended 30 June 2007 Consolidated Group
Notes
Parent Company
2007
2006
2007
2006
$000
$000
$000
$000
Cash flows from Operating Activities Receipts from customers (inclusive of GST) Payments to suppliers and employees (inclusive of GST) Cash generated from operations Income taxes (paid)/received Interest received Finance costs paid Net cash inflow from operating activities
24
3,177,730
2,982,382
346,152
373,303
(2,517,286)
(2,324,695)
(257,920)
(329,539)
660,444
657,687
88,232
43,764
(175,308)
(127,727)
(18,356)
4,173
32,677
24,767
2,112
8,438
(36,973)
(32,563)
480,840
522,164
71,736
56,051
2,739
46
281
-
-
(252)
(324)
Cash flows from Investing Activities Proceeds from sale of property, plant and equipment
3,929
Payments from the sale of business unit Payments for acquired entities
32
Proceeds from sale of other financial assets Dividends received Payments for property, plant and equipment Payments for other investments Payments for intellectual property Payments for restructuring of acquired entities and businesses Payments for Deferred and Contingent Consideration
(103,939)
-
41,605
-
-
-
98
396
971
2,661
Net cash inflow/(outflow) from investing activities
(103,939)
-
(205,480)
(122,065)
(86,200)
(38,881)
(128)
(132)
(128)
(132)
(79,306)
(8,548)
-
-
(1,999)
(10,086)
-
-
(486,555)
Payments for onerous contracts
(14,920)
-
-
-
-
-
(3,469)
(5,025)
(835,244)
(157,641)
(189,250)
51,711
31,695
(36,071)
Cash flows from Financing Activities Proceeds from issue of shares Payments for shares bought back
31,695 19
Dividends paid
(162,534)
(281,538)
51,711 (281,538)
(162,534)
(124,394)
-
-
12,340
49,762
Proceeds from borrowings
254,128
-
-
-
Repayment of borrowings
(20,718)
-
-
Advances from subsidiaries
Net cash inflow/(outflow) from financing activities
102,571
Net increase/(decrease) in cash and cash equivalents
(251,833)
Cash and cash equivalents at the beginning of the financial year Exchange rate variations on foreign cash and cash equivalent balances Cash at the end of the financial year
24
(124,394)
-
(2,082) (356,303) 8,220
(118,499)
(304,459)
(236,013)
(284,479)
747,988
719,751
177,290
461,769
(22,017)
20,017
-
-
474,138
747,988
(58,723)
177,290
The above cash flow statements should be read in conjunction with the accompanying notes.
5
CSL Limited and its controlled entities
Notes to the Financial Statements for the year ended 30 June 2007 1. Summary of Significant Accounting Policies The financial report of CSL Limited (the Parent Company) for the year ended 30 June 2007 was authorised for issue in accordance with a resolution of the directors on 22 August 2007. CSL Limited is a company limited by shares incorporated in Australia whose shares are publicly traded on the Australian Stock Exchange. The consolidated financial statements of the Parent Company as at and for the year ended 30 June 2007 comprise the Parent Company and its subsidiaries (together referred to as the Group). The nature of the operations and principal activities of the Group are described in the Directors’ Report. (a) Statement of compliance This general purpose financial report has been prepared in accordance with Australian Accounting Standards (AASBs) adopted by the Australian Accounting Standards Board (AASB) and the Corporations Act 2001. Compliance with AASBs ensures that the financial report, comprising the financial statements and notes thereto, complies with the International Financial Reporting Standards (IFRS). (b) Basis of preparation The financial report has also been prepared under the historical cost convention, except for “available-for-sale” and “at fair value through profit or loss” financial assets and liabilities (including derivative instruments), that have been measured at fair value. The financial report is presented in Australian dollars and all values are rounded to the nearest thousand dollars ($’000) unless otherwise stated under the option available to the Parent Company under ASIC Class Order 98/0100. The Parent Company is an entity to which the class order applies. The preparation of a financial report in conformity with Australian Accounting Standards requires directors to make judgments, estimates and assumptions that affect the application of policies and reported amounts of assets and liabilities, income and expenses. The estimates and associated assumptions are based on historical experience and various other factors that are believed to be reasonable under the circumstances, the results of which form the basis of making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates. The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimate is revised if the revision only affects that period, or in the period of the revision and future periods if the revision affects both current and future periods. The Group has elected to apply AASB 2007-4 Amendments to Australian Accounting Standards arising from ED 151 and Other Amendments (issued April 2007) to the annual reporting period beginning 1 July 2006. This includes applying AASB 119 to the comparatives in accordance with AASB 108 Accounting Policies, Changes in Accounting Estimates and Errors. The effect of the early adoption of this standard is disclosure only. The Group also elected to apply AASB 7 Financial Instruments: Disclosure in the prior reporting period ended 30 June 2006. The accounting policies set out below have been applied consistently to all periods presented in the consolidated financial report. (c) Principles of Consolidation The consolidated financial statements are those of the Group, comprising CSL Limited and all entities that CSL Limited controlled during the period and at balance date. All intercompany balances and transactions between entities in the Group, including any unrealised profits or losses, have been eliminated in full. Where control of an entity is obtained during a financial period, its results are included in the consolidated income statement from the date on which control commences. Where there is loss of control of an entity, the consolidated income statement includes the results for the part of the reporting period during which control existed. (d) Foreign Currency Translation Items included in the financial statements of each of the Group’s entities are measured using the currency of the primary economic environment in which the entity operates (‘the functional currency’). The consolidated financial statements are presented in Australian dollars, which is CSL Limited’s functional and presentational currency. Foreign currency transactions are translated into the functional currency using the rate of exchange ruling at the date of the transaction. Foreign exchange gains and losses resulting from the settlement of such transactions and from the translation at period-end exchange rates of monetary assets and liabilities denominated in functional currencies are recognised in the income statement, except when deferred in equity as qualifying cash flow hedges and qualifying net investment hedges. Assets and liabilities of foreign operations are translated to Australian dollars at the rates of exchange ruling at the end of the reporting period. Revenue and expenses of foreign operations are translated to Australian dollars at the average rates of exchange ruling for the period. Foreign exchange differences arising on retranslation are recognised directly in the foreign currency translation reserve. On consolidation, exchange differences arising from the translation of any net investment in foreign operations, and of borrowings designated as hedges of such investments, are taken to the foreign currency translation reserve. When a foreign operation is sold, a proportionate share of the post 1 July 2004 net exchange differences are recognised in the income statement as part of the gain or loss on sale.
6
CSL Limited and its controlled entities
Notes to the Financial Statements (continued) for the year ended 30 June 2007 1
Summary of Significant Accounting Policies (continued)
(e) Revenue Recognition Revenue is recognised to the extent that it is probable that the economic benefits will flow to the Group and the revenue can be reliably measured. The following specific recognition criteria must also be met before revenue is recognised: Sales revenue Sales revenue comprises revenue earned (net of returns, discounts and allowances) from the provision of products external to the Group. Sales revenue is recognised when the significant risks and rewards of ownership of the goods have passed to the buyer and the costs incurred or to be incurred in respect of the transaction can be reliably measured. Interest income Interest income is recognised as it accrues (using the effective interest rate method). Other revenue Other revenue is recognised as it accrues. Dividend income Dividend income is recognised when the shareholders’ right to receive the payment is established. (f) Government Grants Government grants are recognised at their fair value where there is reasonable assurance that the grant will be received and the Group will comply with all attached conditions. Government grants relating to an expense item are deferred and recognised in the income statement over the period necessary to match them with the expenses that they are intended to compensate. Government grants received for which there is no future related costs are recognised in the income statement immediately. Government grants relating to the purchase of property, plant and equipment are included in current and noncurrent liabilities as deferred income and are released to the income statement on a straight line basis over the expected useful lives of the related assets. (g) Borrowing Costs Borrowing costs are expensed as incurred (using the effective interest rate method), except where they are directly attributable to the acquisition or construction of a qualifying asset, in which case they are capitalised as part of the cost of that asset. (h) Goods and Services Tax and other foreign equivalents (GST) Revenues, expenses and assets are recognised net of GST except where the amount of GST incurred is not recoverable. Receivables and payables are stated at the GST inclusive amount. Cash flows are included in the cash flow statement on a gross basis. The GST component of cash flows arising from investing and financing activities that are recoverable are classified as operating cash flows. (i) Income Tax Income tax on the profit or loss for the reporting period comprises current and deferred tax. Income tax is recognised in the income statement except to the extent that it relates to items recognised directly in equity, in which case it is recognised in equity. Current tax is the expected tax payable on the taxable income for the reporting period, using the income tax rate for each jurisdiction that has been enacted or substantially enacted at reporting date and any adjustments to tax payable in respect of previous years. Deferred tax is provided using the balance sheet liability method, providing for temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for taxation purposes. Deferred tax is provided at the tax rates expected to apply when the assets are recovered or liabilities are settled. Temporary differences arising from the initial recognition of an asset or a liability that affect neither accounting profit nor taxable income and differences relating to investments in subsidiaries, to the extent they will probably not reverse in the foreseeable future, are not provided for. Deferred tax assets are recognised for deductible temporary differences and unused tax losses only if it is probable that future taxable amounts will be available to utilise those temporary differences and tax losses. Deferred tax assets and deferred tax liabilities are offset only if a legally enforceable right exists to set-off current tax assets against current tax liabilities and the deferred tax assets and deferred tax liabilities related to the same taxable entity or group and the same taxation authority. (j) Cash and Cash Equivalents Cash on hand and in banks and short-term deposits are stated at nominal value. Cash and cash equivalents comprise cash on hand, at call deposits with banks or financial institutions, investments in money market instruments with original maturities of three months or less that are readily convertible to known amounts of cash and which are subject to an insignificant risk of changes in value and bank overdrafts. Bank overdrafts are carried at the principal amount. Interest is charged as an expense as it accrues (using the effective interest rate method).
7
CSL Limited and its controlled entities
Notes to the Financial Statements (continued) for the year ended 30 June 2007 1
Summary of Significant Accounting Policies (continued)
(k) Trade and other receivables Trade and other receivables are initially recorded at the amount of the contracted sale proceeds. An allowance for doubtful debts is recognised to the extent that recovery of the outstanding receivable balance is considered no longer probable. Other current receivables are recognised and carried at the nominal amount due. Non-current receivables are recognised and carried at amortised cost. They are non-interest bearing and have various repayment terms. (l) Inventories Raw materials and stores, work in progress and finished goods are stated at the lower of cost and net realisable value. Cost includes direct material and labour and an appropriate proportion of variable and fixed overhead expenditure, the latter being allocated on the basis of normal operating capacity. Net realisable value is the estimated selling price in the ordinary course of business, less the estimated costs of completion and the estimated costs necessary to make the sale. (m) Investments and other financial assets The Group classifies its investments as financial assets at fair value through the profit or loss, or available for sale financial assets. The classification depends on the purpose for which the investments were acquired. The Group determines the classification of its investments at initial recognition and re-evaluates this designation at each reporting date when allowed and appropriate. Financial assets at fair value through profit or loss This category includes financial assets held for trading and financial assets designated at fair value through profit or loss on initial recognition. A financial asset is classified in this category if acquired principally for the purpose of selling in the short term or if so designated. A financial asset is designated in this category if there exists the possibility it will be sold in the short term, and the asset is subject to frequent changes in fair value. Derivatives are also categorised as held for trading unless they are designated as hedges. Assets in this category are classified as current assets if they are either held for trading or are expected to be realised within 12 months of the balance sheet date. Realised and unrealised gains and losses arising from changes in the fair value of the financial assets at fair value through profit or loss are included in the income statement in the period in which they arise. Financial assets at fair value through the profit or loss are carried at fair value. Available-for-sale financial assets Available-for-sale financial assets are non-derivatives that are designated as available-for-sale. They are included in non-current assets unless it is intended to dispose of the investment within 12 months of the balance sheet date. Available-for-sale financial assets are carried at fair value. Unrealised gains and losses arising from changes in the fair value of financial assets classified as available-for-sale are recognised in equity in the unrealised gains reserve until they are sold or impaired, at which time the accumulated fair value adjustments are included in the income statement. The fair value of all financial assets are based on active market prices. If the market for a financial asset is not active, the Group establishes fair value by using valuation techniques. These include reference to the fair values of recent arm’s length transactions, involving the same instruments or other instruments that are substantially the same, discounted cash flow analysis, and option pricing models refined to reflect the specific circumstances. Investments in subsidiaries are carried at their cost of acquisition, less any impairment allowance, in the Parent Company’s financial statements.
8
CSL Limited and its controlled entities
Notes to the Financial Statements (continued) for the year ended 30 June 2007 1
Summary of Significant Accounting Policies (continued)
(n) Business Combinations The purchase method of accounting is used for all business combinations regardless of whether equity instruments or other assets are acquired. Cost is measured as the fair value of consideration given at the date of acquisition plus costs directly attributable to the acquisition. Where settlement of any part of cash consideration is deferred, where material, the amounts payable in the future are discounted to their present value as at the date of the acquisition. The discount rate used is the entity's incremental borrowing rate, being the rate at which a similar borrowing could be obtained from an independent financier under comparable terms and conditions. Where the consideration for an acquisition is specifically hedged, exchange gains or losses on the hedging transaction arising up to the date of acquisition and costs relative to the hedging transaction are deferred and included in the cost of acquisition. All identifiable assets acquired and liabilities and contingent liabilities assumed in a business combination are measured initially at their fair values at the acquisition date. The excess of the cost of the business combination over the fair value of the identifiable net assets acquired is recognised as goodwill. If the cost of the acquisition is less than the identifiable net assets of the acquisition, the difference represents a discount on acquisition. The discount on acquisition is recognised immediately in the income statement, but only after a reassessment of the identification and measurement of the net assets acquired. (o) Property, Plant and Equipment Freehold land and buildings are recorded at cost, which is not in excess of the recoverable amount. Provision for depreciation of buildings has been made. Plant and equipment is stated at cost less depreciation, amortisation and accumulated impairment losses, which is not in excess of the recoverable amount. Capital work in progress is stated at cost. Property, plant and equipment, except freehold land, are depreciated over their useful lives on a straight line basis as follows: Buildings Plant and equipment Leasehold improvements
5 - 30 years 3 - 15 years 5 - 10 years
(p) Impairment of Assets Assets that have an indefinite useful life are not subject to amortisation and are tested annually for impairment, or more frequently whenever events or changes in circumstances indicate that it may be impaired. Assets that are subject to amortisation are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. An impairment loss is recognised in the income statement for the amount by which the asset’s carrying amount exceeds its recoverable amount. The recoverable amount is the higher of an asset’s fair value less costs to sell and value in use. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects the current market assessments of the time value of money and the risks specific to the asset. For the purpose of assessing impairment, assets are grouped at the lowest levels for which there are separately identifiable cash flows (cash generating units). Impairment losses recognised in respect of cash generating units are allocated first to reduce the carrying amount of any goodwill allocated to cash generating units, and then, to reduce the carrying amount of the other assets in the unit on a pro-rata basis. (q) Leasehold Improvements The cost of improvements to leasehold properties is amortised over the unexpired period of the lease or the estimated useful life of the improvement whichever is the shorter. (r) Leases Leases are classified at their inception as either operating or finance leases based on the economic substance of the agreement so as to reflect the risks and benefits incidental to ownership. Finance leases Leases which effectively transfer substantially all the risks and benefits incidental to ownership of the leased item to the Group are capitalised at the lower of the fair value of the leased item and the present value of the minimum lease payments. The corresponding rental obligations, net of finance charges, are included in interest bearing liabilities. Lease payments are allocated between finance charges and reduction of the lease liability so as to achieve a constant rate on the finance balance outstanding. Finance charges are charged directly against income. Capitalised lease assets are depreciated over the shorter of the estimated useful life of the assets and the lease term. Operating leases The minimum lease payments of operating leases, where the lessor effectively retains substantially all of the risks and benefits of ownership of the leased item, are recognised as an expense in the income statement on a straight-line basis.
9
CSL Limited and its controlled entities
Notes to the Financial Statements (continued) for the year ended 30 June 2007 1
Summary of Significant Accounting Policies (continued)
(s) Goodwill and intangibles Goodwill On acquisition of another entity, the identifiable net assets acquired (including contingent liabilities assumed) are measured at their fair value. The excess of the fair value of the purchase consideration plus incidental expenses, over the fair value of the identifiable net assets, is brought to account as goodwill. Following initial recognition, goodwill is measured at cost less any accumulated impairment losses. Goodwill is tested for impairment annually, or more frequently if events or changes in circumstances indicate that it might be impaired. Goodwill acquired is allocated to each of the cash-generating units expected to benefit from the combination’s synergies. Impairment is determined by assessing the recoverable amount of the cash generating unit to which the goodwill relates. Intangibles Intangible assets acquired separately or in a business combination are initially measured at cost. The cost of an intangible asset acquired in a business combination is its fair value as at the date of acquisition. Following initial recognition, intangible assets are carried at cost less any accumulated amortisation and any accumulated impairment losses. Internally generated intangible assets are not capitalised and expenditure is recognised in profit or loss in the year in which the expenditure is incurred. The useful lives of intangible assets are assessed to be either finite or indefinite. Intangible assets with finite lives are amortised over the useful life and tested for impairment whenever there is an indication that the intangible asset may be impaired. The amortisation period and the amortisation method for an intangible asset with a finite useful life is reviewed at least at each financial year-end. Changes in the expected useful life or the expected pattern of consumption of future economic benefits embodied in the asset are accounted for prospectively by changing the amortisation period or method, as appropriate, which is a change in accounting estimate. Intangible assets with indefinite useful lives are tested for impairment annually either individually or at the cash generating unit level. Such intangibles are not amortised. The useful life of an intangible asset with an indefinite life is reviewed each reporting period to determine whether indefinite life assessment continues to be supportable. If not, the change in the useful life assessment from indefinite to finite is accounted for as a change in an accounting estimate and is thus accounted for on a prospective basis. Research and development costs Research costs are expensed as incurred. An intangible asset arising from development expenditure on an internal project is recognised only when the Group can demonstrate the technical feasibility of completing the intangible asset so that it will be available for use or sale, its intention to complete and its ability to use or sell the asset, how the asset will generate future economic benefits, the availability of resources to complete the development and the ability to measure reliably the expenditure attributable to the intangible asset during its development. Following the initial recognition of the development expenditure, the cost model is applied requiring the asset to be carried at cost less any accumulated amortisation and accumulated impairment losses. (t) Trade and other payables Liabilities for trade and other payables are measured at amortised cost. Trade and other creditors are non-interest bearing and have various repayment terms. (u) Interest-Bearing Liabilities and Borrowings Interest-bearing liabilities and borrowings are recognised initially at fair value net of transaction costs incurred. Subsequent to initial recognition, interest-bearing liabilities and borrowings are stated at amortised cost with any difference between the proceeds (net of transaction costs) and the redemption value recognised in the income statement over the period of borrowings using the effective interest method.
10
CSL Limited and its controlled entities
Notes to the Financial Statements (continued) for the year ended 30 June 2007 1
Summary of Significant Accounting Policies (continued)
(v) Derivative Financial Instruments The Group may use derivative financial instruments to hedge its exposure to foreign exchange risks arising from operational, financing and investment activities. In accordance with its treasury policy, the Group does not hold or issue derivative trading instruments for trading purposes. However, derivatives that do not qualify for hedge accounting are accounted for as trading instruments. Derivatives are initially recognised at fair value on the date a derivative contract is entered into and are subsequently remeasured to their fair value. The gain or loss on remeasurement to fair value is recognised immediately in the income statement. The fair value of forward exchange contracts is calculated by reference to current forward exchange rates for contracts with similar maturity profiles. (w) Provisions Provisions are recognised when the Group has a present legal or constructive obligation arising from past transactions or events, it is probable that a future sacrifice of economic benefits will be made, and a reliable estimate of the amount of the obligation can be made. If the effect of the time value of money is material, provisions are determined by discounting the expected future cash flows at a pre-tax discount rate that reflects the current market assessments of the time value of money and the risks specific to the liability. When discounting is used, the increase in the provision due to the passage of time is recognised as a borrowing cost. (x) Employee Benefits Provision is made for employee benefits accumulated as a result of employees rendering services up to reporting date. These benefits include wages and salaries, annual leave, long service leave and other post retirement benefits. Employee benefits including on costs expected to be settled within one year, together with benefits arising from wages and salaries and annual leave which will be settled after one year, are measured at their nominal amounts based on remuneration rates which are expected to be paid when the liability is settled. Long service leave and other post retirement benefits, including on costs, payable later than one year have been measured at the present value of the estimated future cash outflows to be made for those benefits using the projected unit credit method. Employee benefits expenses and revenues are charged against profits on a net basis in their respective categories. (y) Pension plans The Group contributes to defined benefit and defined contribution pension plans for the benefit of all employees. Defined benefit pension plans provide defined lump sum benefits based on years of service and final average salary. Defined contribution plans receive fixed contributions from the Group and the Group’s legal and constructive obligation is limited to these contributions. A liability or asset in respect of defined benefit pension plans is recognised in the balance sheet, and is measured as the present value of the defined benefit obligation at the reporting date less the fair value of the pension fund’s assets at that date and any unrecognised past service cost. The present value of the defined benefit obligation is based on expected future payments which arise from membership of the fund to the reporting date, calculated by independent actuaries using the projected unit credit method. Consideration is given to expected future wage and salary levels, experience of employee departures and periods of service. Expected future payments are discounted using market yields at the reporting date on national government bonds with maturity and currency that match, as closely as possible, the estimated future cash outflows. Actuarial gains and losses arising from experience adjustments and changes in actuarial assumptions are recognised in retained earnings as incurred. Past service costs are recognised immediately in income, unless the changes to the pension fund are conditional on the employees remaining in service for a specified period of time (vesting period). In this case, the past service costs are amortised on a straight-line basis over the vesting period. Future taxes that are funded by the entity and are part of the provision of the existing benefit obligation are taken into account in measuring the net liability or asset. Contributions to defined contribution pension plans are recognised as an expense as they become payable.
11
CSL Limited and its controlled entities
Notes to the Financial Statements (continued) for the year ended 30 June 2007
1
Summary of Significant Accounting Policies (continued)
(z) Share-based payment transactions The Group provides benefits to its employees (including key management personnel) in the form of share-based payments, whereby employees render services in exchange for rights over shares (equity settled transactions). There are currently two plans in place to provide these benefits, Senior Executive Share Ownership Plan and Employee Performance Rights Plan, and the Global Employee Share Plan. Under the Revised Senior Executive Share Ownership Plan and Employee Performance Rights Plan, Group Executives and Employees are granted options or performance rights over CSL Limited shares which only vest if the Company and the individual achieve certain performance hurdles. Under the Global Employee Share Plan, all employees are granted the option to acquire discounted CSL Limited shares. The fair value of options or rights is recognised as an employee benefit expense with a corresponding increase in equity. The fair value is recognised over the period during which the employees become unconditionally entitled to the options. The fair value at grant date is independently determined using a combination of the Binomial and Black Scholes option valuation methodologies, taking into account the terms and conditions upon which the options and rights were granted. The fair value of the options granted excludes the impact of any non-market vesting conditions. Non-market vesting conditions are included in assumptions about the number of options that are expected to vest. At each reporting date, the Company revises its estimate of the number of options and rights that are expected to vest. The employee benefit expense recognised each period takes into account the most recent estimate of the number of options and rights that are expected to vest. No expense is recognised for options and rights that do not ultimately vest, except where vesting is conditional upon a market condition. Upon exercise of options or rights, the balance of the share-based payments reserve relating to those options or rights is transferred to share capital along with any associated proceeds received. (aa) Contributed equity Ordinary shares are classified as equity. Incremental costs directly attributable to the issue or buy-back of shares are shown in equity as a deduction, net of tax, from equity. (bb) Earnings per share Basic earnings per share is calculated by dividing the profit attributable to members, excluding any costs of servicing equity other than ordinary shares, by the weighted average number of ordinary shares outstanding during the financial year, adjusted for bonus elements in ordinary shares issued during the year. Diluted earnings per share adjusts the figures used in determination of basic earnings per share to take into account the after tax effect of interest and other financing costs associated with dilutive potential ordinary shares and the weighted average number of shares assumed to have been issued for no consideration in relation to dilutive potential ordinary shares. (cc) New standards and interpretations not yet adopted The following standards, amendments to standards and interpretations have been identified as those which may impact the entity in the period of initial application. They are available for early adoption at 30 June 2007, but have not been applied in preparing this financial report. •
AASB 2005-10 Amendments to Australian Accounting Standards (September 2005) makes consequential amendments to AASB 132 Financial Instruments: Disclosure and Presentation, AASB 101 Presentation of Financial Statements, AASB 114 Segment Reporting, AASB 117 Leases, AASB 133 Earnings Per Share, AASB 139 Financial Instruments: Recognition and Measurement, AASB 1 First-time Adoption of Australian Equivalents to International Financial Reporting Standards, AASB 4 Insurance Contracts, AASB 1023 General Insurance Contracts and AASB 1038 Life Insurance Contracts arising from the release of AASB 7. AASB 2005-10 is applicable for annual reporting periods beginning on or after 1 January 2007 and is expected to only impact disclosures contained within the consolidated financial report.
•
AASB 8 Operating Segments replaces the presentation requirements of segment reporting in AASB 114 Segment Reporting. AASB 8 is applicable for annual reporting periods beginning on or after 1 January 2009 and is not expected to have an impact on the financial results of the Parent Company and the Group as the standard is only concerned with disclosures.
•
AASB 2007-3 Amendments to Australian Accounting Standards arising from AASB 8 makes amendments to AASB 5 Non-current Assets Held for Sale and Discontinued Operations, AASB 6 Exploration for and Evaluation of Mineral Resources, AASB 102 Inventories, AASB 107 Cash Flow Statements, AASB 119 Employee Benefits, AASB 127 Consolidated and Separate Financial Statements, AASB 134 Interim Financial Reporting, AASB 136 Impairment Assets, AASB 1023 General Insurance Contracts and AASB 1038 Life Insurance Contracts. AASB 2007-3 is applicable for annual reporting periods beginning on or after 1 January 2009 and must be adopted in conjunction with AASB 8 Operating Segments. This standard is only expected to impact disclosures contained within the financial report.
12
CSL Limited and its controlled entities
Notes to the Financial Statements (continued) for the year ended 30 June 2007
1
Summary of Significant Accounting Policies (continued)
(cc) New standards and interpretations not yet adopted (continued) •
Interpretation 10 Interim Financial Reporting and Impairment prohibits the reversal of an impairment loss recognised in a previous interim period in respect of goodwill, an investment in an equity instrument or a financial asset carried at cost. Interpretation 10 will become mandatory for the Group’s 2008 financial statements, and will apply to goodwill, investments in equity instruments, and financial assets carried at cost prospectively from the date that the Group first applied the measurement criteria of AASB 136 and AASB 139 respectively (ie. 1 July 2004 and 1 July 2005, respectively). The adoption of Interpretation 10 is not expected to have any impact on the financial report of the Group.
•
Interpretation 11 AASB 2 Share-based Payment - Group and Treasury Share Transactions addresses the classification of a share-based payment transaction (as equity or cash settled), in which equity instruments of the parent or another group entity are transferred, in the financial statements of the entity receiving the services. Interpretation 11 will become mandatory for the Group’s 2008 financial report. Interpretation 11 is not expected to have any impact on the financial report of the Group. The effect of the interpretation on the Parent Company for the current financial year would be to increase its profit and its investments in subsidiaries by $4,870,000.
•
AASB 2007-1 Amendments to Australian Accounting Standards arising from AASB Interpretation 11 amends AASB 2 Share-based Payments to insert the transitional provisions of IFRS 2, previously contained in AASB 1 First-time Adoption of Australian Equivalents to International Financial Reporting Standards. AASB 2007-1 is applicable for annual reporting periods beginning on or after 1 March 2007 and is not expected to have any impact on the consolidated financial report.
•
Interpretation 12 Service Concession Arrangements addresses the accounting for service concession operators, but not grantors, for public to private service concession arrangements. Interpretation 12 will apply for the Group’s 2008 financial report. This interpretation has no effect on the Group.
•
AASB 2007-2 Amendments to Australian Accounting Standards arising from AASB Interpretation 12 makes amendments to AASB 1 First-time Adoption of Australian Equivalents to International Financial Reporting Standards, AASB 117 Leases, AASB 118 Revenue, AASB 120 Accounting for Government Grants and Disclosure of Government Assistance, AASB 121 The Effects of Changes in Foreign Exchange Rates, AASB 127 Consolidated and Separate Financial Statement, AASB 131 Interest in Joint Ventures, and AASB 139 Financial Instruments: Recognition and Measurement. AASB 2007-2 is applicable for annual reporting periods beginning on or after 1 January 2007 and must be applied at the same time as Interpretation 12 Service Concession Arrangements. This is expected to have no effect on the Group.
•
AASB 2007-2 Amendments to Australian Accounting Standards also amends references to “UIG Interpretation” to interpretations. This amending standard is applicable to annual reporting periods ending on or after 28 February 2007. This is expected to have no effect on the Group.
•
AASB 123 (amended) Borrowing Costs and AASB 2007-6 Amendments to Australian Accounting Standards arising from AASB 123 require that all borrowing costs associated with a qualifying asset must be capitalised. These amendments are applicable to annual reporting periods ending on or after 1 January 2009. The adoption of these amendments will have no effect on the Group as they reflect the Group’s current practice.
•
IFRIC Interpretation 14 IAS 19 – The Asset Ceiling: Availability of Economic Benefits and Minimum Funding Requirements aims to clarify how to determine in normal circumstances the limit on the assets that an employer’s balance sheet may contain in respect of its defined benefit plans. The interpretation is applicable to annual reporting periods ending on or after 1 January 2008. The interpretation will not have an effect on the Group’s financial statements.
13
CSL Limited and its controlled entities
Notes to the Financial Statements (continued) for the year ended 30 June 2007
2
Segment Information Business Segments The Group’s primary segment reporting format is business segments. The Group operates one segment – Human Health, the principal activity being to develop, manufacture and market biopharmaceutical products to the human health industry. The Human Health business segment has been further broken down into CSL Behring and Other Human Health to assist with external analysis of the financial statements. Other Human Health includes CSL Biotherapies and CSL Bioplasma. Geographical Segments The Group operates predominantly in three segments, being Australasia/Asia Pacific, Americas and EMEA. The geographic segment of Australasia/Asia Pacific comprises Australia, New Zealand and Asia. The geographic segment of Americas includes North and South America. The geographic segment of EMEA includes Europe, Middle East and Africa. Segment Accounting Policies The Group accounts for inter-segment sales and transfers as if the sales or transfers were to third parties at current market prices. Segment accounting policies are the same as the Group's policies described in note 1. During the financial year, there were no changes in segment accounting policies.
CSL Behring Business segments External sales Other external revenue Segment revenue
Other Human Health 2007
2007
2006
2006
2006
$000 527,403
$000 3,172,397
$000 2,445,621
$000 403,287
$000 2,848,908
7,602
96,995
104,597
4,721
24,193
28,914
2,652,596
624,398
3,276,994
2,450,342
427,480
2,877,822
33,182
Total revenue
Profit attributable to members of the Parent Company
Total Human Health
2007
Other unallocated revenue
Finance costs Profit before income tax expense and contingent consideration Contingent consideration Profit before income tax expense Income tax expense
CSL Behring
Other Human Health
$000 2,644,994
Interest income
Segment results Other unallocated expenses net of other unallocated revenue Profit from continuing activities before interest and income tax and contingent consideration Interest income
Total Human Health
736,554
77,288
25,466
-
244
3,310,176
2,903,532
813,842
497,947
47,902
545,849
(27,777)
(30,818)
786,065
515,031
33,182
25,466
(45,188)
(41,517)
774,059
498,980
-
(328,515)
774,059
170,465
(234,760)
(53,108)
539,299
117,357
14
CSL Limited and its controlled entities
Notes to the Financial Statements (continued) for the year ended 30 June 2007
2
Segment Information (continued)
CSL Behring Business segments
Other Human Health
Total Human Health
CSL Behring
Other Human Health
Total Human Health
2007
2007
2007
2006
2006
2006
$000
$000
$000
$000
$000
$000
3,219,571
454,542
3,674,113
372,048
3,603,884
Assets and liabilities Segment assets Unallocated assets Total assets Segment liabilities
856,778
57,124
3,231,836
525,581
582,201
4,199,694
4,186,085
913,902
807,710
69,887
877,597
Unallocated liabilities
1,016,943
1,318,684
Total liabilities
1,930,845
2,196,281
Other Segment information Segment capital expenditure
119,171
86,259
Unallocated capital expenditure Total capital expenditure Depreciation and amortisation
87,278
43,788
Unallocated depreciation and amortisation Total depreciation and amortisation Other non-cash expenses
Geographic segments June 2007 External revenues Segment assets Total capital expenditure
222
-
205,430
82,721
38,278
120,999
50
1,066
205,480
122,065
131,066
84,772
29,271
114,043
1,503
2,021
132,569
116,064
222
-
75
75
Australasia/ Asia Pacific $000
Americas $000
Europe, Middle East & Africa $000
Consolidated Group $000
785,032 1,128,149 86,615
1,293,489 817,180 39,760
1,231,655 2,254,365 79,105
3,310,176 4,199,694 205,480
575,073 1,131,432 39,703
1,200,896 736,636 40,000
1,127,563 2,318,017 42,362
2,903,532 4,186,085 122,065
June 2006 External revenues Segment assets Total capital expenditure
15
CSL Limited and its controlled entities
Notes to the Financial Statements (continued) for the year ended 30 June 2007
Notes
Consolidated Group 2007 2006 $000 $000
Parent Company 2007 2006 $000 $000
3 Revenue and expenses from continuing operations Revenue Sales revenue
3,172,397
2,848,908
485,100
346,822
103,470
28,208
93,052
23,464
33,182
25,466
3,112
8,337
1,127
950
1,041
950
-
-
400,873
2,265
Other revenue Royalties and licence revenue Finance revenue Rent Dividend revenue - Subsidiaries Total other revenues Total revenue from continuing operations
137,779
54,624
498,078
35,016
3,310,176
2,903,532
983,178
381,838
33,118
25,317
3,048
8,033
-
-
-
165
64
149
64
139
33,182
25,466
3,112
8,337
3,209
1,660
3,209
1,660
-
421
-
-
66
-
-
-
3,275
2,081
3,209
1,660
Finance revenue comprises: Interest income: Other persons and/or corporations Subsidiaries Key management personnel
Other income Government grants Net gains on disposal of plant, property and equipment Net foreign exchange gain Total other income
The Consolidated Group has entered into various grant agreements relating to the development, commercialisation and production of pharmaceutical products. The grants received are deferred until all conditions or other contingencies attaching to them have been satisfied, at which time they are recognised as other income over the period necessary to match them with the expenses that they are intended to compensate. Finance costs Interest expense: Other persons and/or corporations Non-cash interest - Unwinding of discount Total finance costs
38,293
34,157
4,287
6,895
7,360
-
4,826 -
45,188
41,517
4,287
4,826
Depreciation and amortisation included in the income statement Depreciation and amortisation of fixed assets Buildings depreciation
10 10
9,775
8,936
4,194
4,007
84,476
92,243
27,366
27,115
Leased property, plant and equipment amortisation
10
2,817
2,877
-
-
Leasehold improvements amortisation
10
1,880
950
-
-
98,948
105,006
31,560
31,122
Plant and equipment depreciation
Total depreciation and amortisation of fixed assets Amortisation of intangibles Intellectual Property Total amortisation of intangibles Total depreciation and amortisation
12
33,621
11,058
10,575
-
33,621
11,058
10,575
-
132,569
116,064
42,135
31,122
16
CSL Limited and its controlled entities
Notes to the Financial Statements (continued) for the year ended 30 June 2007
Notes
Consolidated Group 2007 2006 $000 $000
Parent Company 2007 2006 $000 $000
3 Revenue and expenses (continued) Other expenses Write-down of inventory to net realisable value Doubtful debts Net loss on disposal of property, plant and equipment Net foreign exchange loss Lease payments and related expenses included in the income statement Rental expenses relating to operating leases
54,448
14,852
4,884
3,490
6,037
8,787
-
(74)
222
-
-
75
-
951
2,070
611
60,707
24,590
6,954
4,102
34,640
34,098
2,591
1,930
Employee benefits expense Salaries and wages
733,735
679,617
133,266
116,505
Defined benefit plan expense
25
14,827
14,218
1,785
1,952
Defined contribution plan expense
25
15,420
14,623
10,398
9,610
Share based payments expense
20
9,795
4,684
9,795
4,684
773,777
713,142
155,244
132,751
178,151
160,191
19,397
6,714
Origination and reversal of temporary differences
63,649
(96,638)
Tax losses recognised
(2,646)
(13,184)
61,003
(109,822)
4 Income tax expense Income tax expense recognised in the income statement Current tax expense Current year Deferred tax expense
11 Under/(over) provided in prior years
(2,487)
(2,432)
-
-
(2,487)
(2,432)
(4,394)
2,739
(412)
1,287
234,760
53,108
16,498
5,569
Accounting profit before income tax
774,059
170,465
454,628
21,603
Income tax calculated at 30% (2006: 30%)
232,218
51,139
136,388
Income tax expense Reconciliation between tax expense and pre-tax net profit The reconciliation between tax expense and the product of accounting profit before income tax multiplied by the Group’s applicable income tax rate is as follows:
Research and development Non-assessable capital loss / (gain) Exempt dividends received
(2,507)
(2,984)
(828)
2,073
-
Other non-deductible/non-assessable items
1,052
6,481 (2,984)
-
-
(120,262)
(680)
7,570
3,123
1,466
(13,183)
-
-
23,230
5,754
-
(4,394)
2,739
Utilisation of tax losses/unrecognised deferred tax
(14,011)
Effects of different rates of tax on overseas income Under/(Over) provision in prior year Income tax expense
-
(2,339)
234,760
53,108
(412)
1,286
16,498
5,569
6,427
Income tax recognised directly in equity Deferred tax benefit/(expense) Share based payments Net actuarial (gain)/loss on defined benefit plans Income tax benefit/(expense) recognised in equity
11
8,628
6,427
8,628
(3,226)
6,319
(1,730)
(616)
5,402
12,746
6,898
5,811
17
CSL Limited and its controlled entities
Notes to the Financial Statements (continued) for the year ended 30 June 2007
4
Income tax (continued) Tax consolidation in Australia The Parent Company and its wholly owned Australian resident entities formed a tax consolidation group with effect from 1 July 2003 and therefore are taxed as a single entity from that date. CSL Limited is the head entity of the tax consolidated group. Tax effect accounting by members of the tax consolidated group in Australia Current tax expense/income, deferred tax liabilities and deferred tax assets arising from temporary differences of the members of the tax consolidation group are recognised in the separate financial statements of the members of the tax consolidation group using the ‘separate taxpayer within group’ approach, by reference to the carrying amounts in the separate financial statements of each entity and the tax values applying under tax consolidation. Current tax liabilities (or assets) and deferred tax assets arising from unused tax losses of the subsidiaries are assumed by the head entity in the tax consolidation group and are recognised as amounts payable/(receivable) to/(from) other entities in the tax consolidated group in conjunction with any tax funding arrangement amounts (refer below). Any difference between these amounts is recognised as an equity contribution or distribution. The Parent Company recognises deferred tax assets arising from unused tax losses of the tax consolidated group to the extent that it is probable that future taxable profits of the tax consolidated group will be available against which the asset can be utilised. Tax funding arrangements and tax sharing agreements in Australia Members of the tax consolidated group have entered into a tax funding agreement. The tax funding agreement sets out the funding obligations of members of the tax consolidated group. Payments are required to/from the head entity equal to the current tax liability/(asset) assumed and any deferred tax assets arising from unused tax losses assumed by the head entity, resulting in the head entity recognising an inter-entity payable/(receivable) equal to the tax liability/(asset) assumed. The inter-entity payable/(receivable) is at call. Contributions to fund the current tax liabilities are payable as per the tax funding arrangement and reflect the timing of the head entity’s obligation to make payments for tax liabilities to the relevant authorities. The head entity, in conjunction with other members of the tax consolidated group, has also entered into a tax sharing agreement. The tax sharing agreement provides for the determination of the allocation of income tax liabilities between the entities should the head entity default on its tax payment obligations. No amounts have been recognised in the financial statements in respect of this agreement as payment of any amount under the tax sharing agreement is considered remote.
5
Contingent consideration on acquisition of Aventis Behring On 31 March 2004, the Group acquired the global plasma therapeutics business of Aventis Behring. The consideration included contingent payments. On 20 June 2006 the Board of Directors performed their six monthly review of the likelihood of the potential contingent payments meeting the criteria for recognition as a provision. During this review it was determined that as a result of the continued positive business performance the contingency now met the recognition criteria and accordingly a provision was raised by the Group and booked in the accounts of the acquirer, ZLB Bioplasma (Hong Kong) Limited. Consistent with AIFRS and the company’s announcement at the time of the acquisition, the provision was charged to the Income Statement at the time of recognition. To provide the reader with greater clarity of the effect of this charge on the financial statements, it has been separately shown on the face of the Income Statement. The liability was included on the balance sheet within non-current provisions as at 30 June 2006 (see note 17). The amount was settled early with Sanofi-Aventis to assist in the facilitation of the extension of the Helixate supply contract with Bayer. The amount was paid in February 2007.
18
CSL Limited and its controlled entities
Notes to the Financial Statements (continued) for the year ended 30 June 2007
Consolidated Group 2007 2006 $000 $000
6
7
Parent Company 2007 2006 $000 $000
Cash and cash equivalents Cash at bank and on hand
137,629
384,064
-
28,066
Cash deposits
342,608
369,630
-
149,224
480,237
753,694
-
177,290
547,797
538,726
23,014
35,843
18,853
13,744
423
423
528,944
524,982
22,591
35,420
Trade and other receivables Current Trade receivables Less: Allowance for doubtful debts (i) Sundry receivables
61,242
40,063
41,488
7,805
Prepayments
26,794
28,634
2,763
3,036 49,534
Receivables – wholly owned subsidiaries
-
-
263,742
Receivables – partly owned subsidiaries
-
-
3,939
3,939
616,980
593,679
334,523
99,734
Non Current Related parties Loans to key management personnel – executive directors Loans to key management personnel – other executives Loans to other employees Long Term Deposits
(i) Reconciliation of Allowance for doubtful debts Opening balance Additional allowance / (utilised) Currency translation differences
8
46
511
46
511
960
4,937
960
4,937 5,669
6,528
5,669
6,528
3,133
6,556
-
-
10,667
17,673
7,534
11,117
13,744
4,170
423
497
6,037
8,787
-
(74)
787
-
-
18,853
(928)
13,744
423
423
237,185
188,269
14,951
13,088
4,205
10,139
424
967
Raw materials and stores – net
232,980
178,130
14,527
12,121
Work in progress – at cost
545,629
413,415
24,987
19,073
35,593
25,699
792
1,549
Work in progress – net
510,036
387,716
24,195
17,524
Finished goods – at cost
393,664
423,129
31,559
37,985
8,399
15,548
863
1,204
385,265
407,581
30,696
36,781
1,128,281
973,427
69,418
66,426
Inventories Raw materials and stores – at cost Less: Allowance for diminution in value
Less: Allowance for diminution in value
Less: Allowance for diminution in value Finished goods - net
19
CSL Limited and its controlled entities
Notes to the Financial Statements (continued) for the year ended 30 June 2007
Consolidated Group
9
Parent Company
2007 $000
2006 $000
2007 $000
2006 $000
594
7,872
-
-
7,913
4,728
7,913
4,728
Other financial assets Current At fair value through the profit or loss: Managed financial assets Non-current Available-for-sale financial assets: Unlisted equity securities At fair value through the profit or loss: Managed financial assets Shares in subsidiaries – at cost (refer note 31)
10
5,895
-
-
-
-
-
1,333,788
1,228,207
13,808
4,728
1,341,701
1,232,935
25,734
26,097
25,030
25,030
-
(411)
-
-
48
-
-
25,594
25,734
25,030
25,030
231,360
196,653
83,255
81,162
11,795
24,803
8,883
2,093
4,864
264
-
-
(101)
-
-
Property, Plant and Equipment Land at cost Opening balance Disposals Currency translation differences Closing balance
(140)
Buildings at cost Opening balance Transferred from capital work in progress Other additions Disposals
(778)
Currency translation differences
(23,160)
9,741
-
-
Closing balance
224,081
231,360
92,138
83,255
50,641
39,039
26,507
22,500
9,775
8,936
4,194
4,007
(778)
(103)
-
-
Currency translation differences
(6,939)
2,769
-
-
Closing balance
52,699
50,641
30,701
26,507
Net book value of buildings
171,382
180,719
61,437
56,748
Net book value of land and buildings
196,976
206,453
86,467
81,778
Accumulated depreciation and impairment losses Opening balance Depreciation for the year Disposals
Leasehold improvements at cost Opening balance
5,040
4,208
159
168
Transferred from capital work in progress
4,504
1,286
-
-
Other additions
1,275
31
-
-
357
-
-
-
(1,471)
(26)
-
(9)
(933)
(459)
-
-
8,772
5,040
159
159
Opening balance
3,378
2,282
159
168
Amortisation for the year
1,880
950
-
-
Disposals
(1,471)
(17)
-
(9)
Currency translation differences
(1,290)
Additions through acquisition of controlled entities Disposals Currency translation differences Closing balance Accumulated amortisation and impairment
163
-
-
Closing balance
2,497
3,378
159
159
Net book value of leasehold improvements
6,275
1,662
-
-
20
CSL Limited and its controlled entities
Notes to the Financial Statements (continued) for the year ended 30 June 2007
Consolidated Group
10
Parent Company
2007 $000
2006 $000
2007 $000
2006 $000
Property, Plant and Equipment (continued) Plant and equipment at cost 994,620
884,337
492,845
486,233
Transferred from capital work in progress
Opening balance
81,540
69,160
40,284
17,020
Other additions
17,859
18,297
-
-
253
-
-
Additions through acquisition of controlled entities Disposals
(12,793)
(24,187)
(54)
(10,408)
Currency translation differences
(88,074)
47,013
-
-
Closing balance
993,405
994,620
533,075
492,845 321,728
Accumulated depreciation and impairment Opening balance
509,303
412,570
338,715
Depreciation for the year
84,476
92,243
27,366
Disposals
(8,642)
(22,151)
(7)
27,115 (10,128)
Currency translation differences
(57,359)
26,641
-
-
Closing balance
527,778
509,303
366,074
338,715
Net book value of plant and equipment
465,627
485,317
167,001
154,130 -
Leased property, plant and equipment at cost Opening balance
37,293
33,617
-
Other additions
139
256
-
-
Disposals
(81)
(116)
-
-
Currency translation differences
(4,007)
3,536
-
-
Closing balance
33,344
37,293
-
-
Opening balance
7,881
3,741
-
-
Amortisation for the year
2,817
2,877
-
-
(81)
(108)
-
-
(1,750)
1,371
-
-
8,867
7,881
-
-
24,477
29,412
-
-
Accumulated amortisation and impairment
Disposals Currency translation differences Closing balance Net book value of leased property, plant and equipment Capital work in progress Opening balance Other additions
93,492
81,863
32,973
13,206
181,343
103,084
86,200
38,880
Transferred to buildings at cost
(11,795)
(24,803)
(8,883)
(2,093)
Transferred to plant and equipment at cost
(81,540)
(69,160)
(40,284)
(17,020)
(4,504)
(1,286)
-
Currency translation differences
Transferred to leasehold improvements at cost
(11,457)
3,794
-
-
Closing balance
165,539
93,492
70,006
32,973
Total net book value of property, plant and equipment
858,894
816,336
323,474
268,881
21
CSL Limited and its controlled entities
Notes to the Financial Statements (continued) for the year ended 30 June 2007
Consolidated Group 2007 2006 $000 $000
11
Parent Company 2007 2006 $000 $000
Deferred tax assets and liabilities Deferred tax asset
150,656
187,432
7,670
-
Deferred tax liability
(85,515)
(61,767)
-
(1,715)
65,141
125,665
7,670
(1,715)
1,187
(7,518)
(13)
449
12,849
41,698
(2,621)
(2,095) (18,797)
Net deferred tax asset / (liability) Deferred tax balances comprise temporary differences attributable to: Amounts recognised in the income statement Trade and other receivables Inventories Property, plant and equipment
(60,199)
(62,066)
(17,613)
Intangible assets
(63,688)
(49,171)
(2,828)
(47)
8,169
148
153
9,295
8,813
6,590
2,084
544
751
-
-
147,052
164,769
11,298
10,680
Other assets Trade and other payables Interest bearing liabilities Other liabilities and provisions Recognised carry-forward tax losses
-
-
-
7,474
46,993
112,919
15,055
6,427
15,055
3,093
6,319
(2,346)
(616)
18,148
12,746
12,709
5,811
65,141
125,665
7,670
(1,715)
(9,958)
(5,039)
(7,526)
Amounts recognised in equity Other assets Other liabilities and provisions Net deferred tax asset/(liability)
6,427
Movement in temporary differences during the year Opening balance
125,665
(1,618)
(1,715)
Credited/(charged) to the income statement
(61,003)
109,882
2,487
2,432
5,402
12,746
6,898
5,811
Currency translation difference
(4,923)
4,655
-
-
Closing balance
65,141
125,665
7,670
(1,715)
18
226
-
-
-
-
-
-
8,530
6,519
-
-
17,413 25,961
19,547 26,292
-
-
Credited to equity
Unrecognised deferred tax assets Deferred tax assets have not been recognised in respect of the following items: Tax losses: Expiry date in less than 1 year Expiry date greater than 1 year but less than 5 years Expiry date greater than 5 years No expiry date
Deferred tax assets have not been recognised in respect of these items because it is not probable that future taxable profit will be available for utilisation in the entities that have recorded these losses.
22
CSL Limited and its controlled entities
Notes to the Financial Statements (continued) for the year ended 30 June 2007
Consolidated Group 2007 2006 $000 $000 12
Parent Company 2007 2006 $000 $000
Intangible Assets Carrying amounts Goodwill Opening balance Additions
735,431
692,591
-
-
12,083
-
-
-
Currency translation differences
(91,849)
42,840
-
-
Closing balance
655,665
735,431
-
20,000
Intellectual property Opening balance
105,849
104,411
20,000
Additions
245,693
-
-
-
Disposals
-
-
-
-
Currency translation differences
(29,834)
1,438
-
-
Closing balance
321,708
105,849
20,000
20,000
Opening balance
20,439
10,567
-
-
Amortisation for the year
33,621
11,058
10,575
-
Currency translation differences
(4,281)
(1,186)
-
-
Closing balance
49,779
20,439
10,575
-
Net intellectual property
271,929
85,410
9,425
20,000
Total net intangible assets
927,594
820,841
9,425
20,000
Accumulated amortisation and impairment
The amortisation charge is recognised in general and administration expenses in the income statement. Impairment tests for cash generating units containing goodwill For the purpose of impairment testing, goodwill is allocated to the Group’s business unit which represents the lowest level within the Group at which the goodwill is monitored for internal management purposes. The aggregate carrying amounts of goodwill allocated to each unit are as follows: CSL Behring CSL Biotherapies
643,582
735,431
-
-
12,083
-
-
-
655,665
735,431
-
-
The impairment tests for these cash generating units is based on value in use calculations. These calculations use cash flow projections based on actual operating results and the three-year strategic business plan. Cash flows for a further period of 3 years have been extrapolated using a zero per cent growth rate at which point a Terminal Value is calculated based on a business valuation multiple. The valuation multiple has been calculated based on independent external analyst views, long term government bond rates and the Company’s pre-tax cost of debt. Projected cash flows have been discounted by using the implied pre-tax discount rate of 9.66% associated with the business valuation multiple discussed above. The recoverable amount of the units significantly exceeds their carrying amounts, including goodwill. It is not considered a reasonable possibility for a change in assumptions to occur that would lead to the recoverable amount falling below the unit’s carrying amount.
23
CSL Limited and its controlled entities
Notes to the Financial Statements (continued) for the year ended 30 June 2007
Consolidated Group 2007 2006 $000 $000
13
Parent Company 2007 2006 $000 $000
Retirement benefit assets and liabilities Retirement benefit assets Non-current Defined benefit plans (refer note 25)
11,983
3,514
7,887
1,840
Retirement benefit liabilities Current defined benefit plans (refer note 25)
14
-
4,635
-
-
Non-current defined benefit plans (refer note 25)
84,468
90,588
-
-
Total retirement benefit liabilities
84,468
95,223
-
-
Trade and other payables Current Trade payables
177,010
136,089
43,961
32,859
Accruals and other payables
262,500
252,890
55,450
37,179
Payable – wholly owned subsidiaries
15
-
-
414,320
618,961
439,510
388,979
513,731
688,999
Interest-bearing liabilities and borrowings Current Bank overdrafts – Unsecured Bank loans – Unsecured (a) Senior Unsecured Notes - Unsecured (b) Deferred cash settlement for subsidiary acquired Unsecured (c) Deferred cash settlement for intangibles acquired Unsecured (d) Lease liability – Secured (e)
6,099
5,706
58,723
-
118,178
347,333
-
-
16,751
18,993
-
-
-
80,228
-
-
14,197
9,261
-
-
1,920
2,111
-
-
157,145
463,632
58,723
-
Bank loans - Unsecured (a)
549,182
139,589
-
-
Senior Unsecured Notes - Unsecured (b) Deferred cash settlement for subsidiary acquired Unsecured (c) Deferred cash settlement for intangibles acquired Unsecured (d) Lease liability - Secured (e)
266,985
317,477
-
-
-
82,262
-
-
-
16,459
-
-
34,445
39,410
-
-
850,612
595,197
-
-
Non-current
(a)
During the year the Group re-negotiated its global multicurrency facility. The facility was increased to $900 million (2006: $650 million) and the maturity dates extended. The facility now has three tranches with maturity dates in March 2008, March 2010 and March 2012. In March 2007 a draw down of US$200 million ($254 million) was made under the facility and the funds were used to partially fund the remaining consideration payable for the acquisition of Aventis Behring. Interest on the facility is paid quarterly in arrears at a variable rate.
(b)
Represents US$150 million and Euro68 million of Senior Unsecured Notes placed into the US Private Placement market. The notes have biannual repayments and mature in December 2012. The interest rate on the US$ notes is fixed at 5.30% and 5.90%. The interest rate on the Euro notes is fixed at 3.98% and 4.70%.
(c)
During the year the Group paid the remaining consideration payable for the acquisition of Aventis Behring.
(d)
The company has deferred cash settlements for consideration payable on the acquisition of intangible assets, discounted at the incremental borrowing rate at the time of acquisition (ranging from 2% to 3.5%). Payment dates are determined in accordance with the acquisition agreements and are payable at various dates concluding in 2007.
(e)
Finance leases have an average lease term of 17 years (2006: 18 years). The weighted average discount rate implicit in the leases is 6.35% (2006: 6.14%). The Group’s lease liabilities are secured by leased assets of $24.5 million (2006: $29.4 million). In the event of default, leased assets revert to the lessor.
Note 35 has further information about the Group’s exposure to interest rate risk, foreign exchange risk and the fair value of financial assets and liabilities.
24
CSL Limited and its controlled entities
Notes to the Financial Statements (continued) for the year ended 30 June 2007
Notes 16
Consolidated Group 2007 2006 $000 $000
Parent Company 2007 2006 $000 $000
Tax assets and liabilities Current Assets Income tax
-
6,889
-
6,889
97,801
88,038
2,368
-
-
5,043
-
-
97,801
93,081
2,368
-
Tax Liabilities Current liability income tax Non-current income tax Total tax liabilities 17
Provisions Current 61,197
66,237
27,473
24,805
Restructuring
Employee benefits
25
6,704
10,828
-
-
Onerous contracts
4,638
4,676
-
-
724
2,343
-
-
29,847
-
-
-
-
1,801
777
1,310
103,110
85,885
28,250
26,115
40,771
52,586
4,420
4,221
10,195
15,863
-
-
-
948
-
-
56,657
337,654
-
-
-
1,002
1,261
1,002
107,623
408,053
5,681
5,223
Surplus lease space Provision for contingent consideration Other
Non-current Employee benefits Onerous contracts Surplus lease space Provision for contingent consideration Other
25
Restructuring A restructuring provision is recognised when the main features of the restructuring are planned, identifying the business/locations affected, location, function and approximate number of employees, the expenditures that will be undertaken and the implementation timetable, and there is a demonstrable commitment and valid expectation that the restructuring plan will be implemented. Onerous contracts The provision recognised is based on the excess of the estimated cash flows to meet the unavoidable costs, over the estimated cash flows to be received in relation to certain contracts, having regard to the risks of the activities relating to the contracts. Surplus lease space A surplus lease space provision has been recognised in respect to the net obligation payable for various non-cancellable operating leases where the leases have been identified as surplus to the Group’s current requirements. Provision for contingent consideration on acquisitions A provision for contingent consideration is recognised when it is probable that payment will be made and the amount can be measured reliably. Discounting Where the effect of discounting is determined to be material to the provision, the net estimated cash flows are discounted using a pre-tax discount rate reflecting current market assessments of the time value of money and the risks specific to the liability.
25
CSL Limited and its controlled entities
Notes to the Financial Statements (continued) for the year ended 30 June 2007
Consolidated Group 2007 2006 $000 $000 17
Parent Company 2007 2006 $000 $000
Provisions (continued) Movements in provisions Restructuring Opening balance
23,319
-
-
(1,999)
(10,086)
-
-
Provision utilised
(1,101)
(3,357)
-
-
Currency translation differences
(1,024)
952
-
-
6,704
10,828
-
-
20,539
15,250
-
-
-
9,111
-
-
(5,025)
-
-
Payments made
Closing balance
10,828
Onerous contracts Opening balance Additional provision Payments made Provision utilised
(3,469) (882)
-
-
-
Currency translation differences
(1,355)
1,203
-
-
Closing balance
14,833
20,539
-
-
Surplus lease space Opening balance
3,291
10,564
-
-
Payments made
(2,394)
(4,908)
-
-
(6)
(2,511)
-
-
(167)
146
-
-
3,291
-
-
Provision utilised Currency translation differences Closing balance
724
Contingent consideration Opening balance
337,654
-
-
Provision recognised
91,731
328,515
-
-
-
-
-
Payments made Currency translation differences Closing balance
(323,583) (22,330) 83,472
9,139
-
-
337,654
-
-
Other Opening balance
2,803
7,932
2,312
6,876
Additional provision
1,692
1,101
659
74,575
Payments made Currency translation differences Closing balance
18
(1,407)
(6,282)
(56)
52
-
-
2,803
2,038
2,312
3,032
(933)
(79,139)
Deferred government grants Current deferred income Non-current deferred income
100
371
100
371
4,961
4,093
4,961
4,093
5,061
4,464
5,061
4,464
26
CSL Limited and its controlled entities
Notes to the Financial Statements (continued) for the year ended 30 June 2007
Consolidated Group
19
Parent Company
2007 $000
2006 $000
2007 $000
2006 $000
1,023,941
994,101
1,023,941
994,101
Contributed equity Ordinary shares issued and fully paid
Ordinary shares have the right to receive dividends as declared and, in the event of winding up the company, to participate in the proceeds from the sale of all surplus assets in proportion to the number of and amounts paid up on shares held. Ordinary shares entitle their holder to one vote, either in person or proxy, at a meeting of the company. 2007 Number of shares
2006 Number of shares
$000
$000
Movement in ordinary shares on issue Opening balance Shares issued to employees through participation in SESOP II(i) Shares issued to employees through Performance Rights (ii) Shares issued to employees through participation in GESP (iii) Share Based Payments reserve transfer Share buy-back, inclusive of cost (iv) Closing balance
181,889,019
994,101
188,272,370
1,223,466
864,930
25,295
1,553,870
49,917
221,800
-
-
-
66,273
2,817
62,779
1,794
-
1,728
-
-
-
(8,000,000)
(281,538)
183,042,022
1,023,941
181,889,019
994,101
Consolidated Group 2007 $000 (i)
(ii)
(iii)
(iv)
Options exercised under SESOP II as disclosed in note 26 were as follows: - 189,420 issued at $12.19
462
Parent Company
2006 $000
2007 $000
2006 $000
2,309
636
2,309
636
-
6,000 issued at $20.67
124
372
124
372
-
0 issued at $20.84
-
354
-
354
-
0 issued at $21.01
-
252
-
252
-
0 issued at $23.07
-
923
-
923
- 321,870 issued at $27.97
9,003
12,855
9,003
12,855
- 50,300 issued at $34.04
1,712
15,917
1,712
15,917
- 215,340 issued at $37.54
8,084
17,369
8,084
17,369
- 50,000 issued at $49.31
2,465
-
2,465
-
- 32,000 issued at $49.94
1,598
1,239
1,598
1,239
25,295
49,917
25,295
49,917
-
-
-
822
Performance Rights exercised as disclosed in note 26 were as follows: - 221,800 issued at nil consideration
-
Shares issued to employees under Global Employee Share Plan (GESP) as disclosed in note 26 were as follows: - 32,727 issued at $41.95 on 6 September 2006
1,373
822
1,373
- 33,546 issued at $43.04 on 7 March 2007
1,444
972
1,444
972
2,817
1,794
2,817
1,794
During the year ended 30 June 2006, as part of its capital management program, the Company purchased 8,000,000 ordinary shares on market at an average price of $35.16 per share, with prices ranging from $34.25 to $36.44. The share buy-back was approved by the Board on 28 June 2005. All shares were cancelled.
27
CSL Limited and its controlled entities
Notes to the Financial Statements (continued) for the year ended 30 June 2007
Consolidated Group
20
Parent Company
2007 $000
2006 $000
2007 $000
2006 $000
30,147
13,452
30,147
13,452
2,957
(101)
2,957
(101)
(223,475)
(69,118)
-
-
(190,371)
(55,767)
33,104
13,351
13,452
2,803
13,452
2,803
9,795
4,684
9,795
4,684 6,427
Reserves Share based payments reserve Net unrealised gains reserve Foreign currency translation reserve
Movements in reserves Share based payments reserve Opening balance Share based payments expense
8,628
6,427
8,628
Transfer to contributed equity
Deferred tax on share based payments
(1,728)
(462)
(1,728)
Closing balance
30,147
Net unrealised gains reserve Opening balance Unrealised gains/(losses) on revaluation of available-forsale investments Closing balance
(101)
13,452 -
30,147 (101)
(462) 13,452 -
3,058
(101)
3,058
(101)
2,957
(101)
2,957
(101)
(69,118)
(185,809)
-
-
(154,357)
116,691
-
-
(223,475)
(69,118)
-
-
Foreign currency translation reserve Opening balance Net exchange gains/(losses) on translation of foreign subsidiaries, net of hedge Closing balance Nature and purpose of reserves Share based payments reserve The share based payments reserve is used to recognise the fair value of options, performance rights and global employee share plan rights issued but not exercised. Amounts are transferred to contributed equity when options and other equity instruments are exercised. Net unrealised gains reserve The net unrealised gains reserve is used to recognise the cumulative changes in the fair value, net of tax, of investments that are classified as available-for-sale. Amounts are recognised in profit or loss when the associated assets are sold or impaired. Foreign currency translation reserve The foreign currency translation reserve is used to record exchange differences arising from the translation of the financial statements of foreign operations and exchange gains and losses arising on those foreign currency borrowings which are designated as hedging the Company’s net investment in foreign operations.
28
CSL Limited and its controlled entities
Notes to the Financial Statements (continued) for the year ended 30 June 2007
Note
21
Parent Company 2007 2006 $000 $000
Retained earnings Opening balance Net profit for the year Dividends
22
1,051,470
1,068,065
151,144
539,299
117,357
438,130
(162,534)
(124,394)
Actuarial gain/(loss) on defined benefit plans
10,270
(15,877)
Deferred tax on actuarial gain/(loss) on defined benefit plans
(3,226)
Closing balance
22
Consolidated Group 2007 2006 $000 $000
6,319
(162,534) 5,763 (1,730)
258,067 16,034 (124,394) 2,053 (616)
1,435,279
1,051,470
430,773
151,144
72,926
55,113
72,926
55,113
-
18,371
-
18,371
89,608
50,910
89,608
50,910
162,534
124,394
162,534
124,394
Dividends not recognised at year end In addition to the above dividends, since year end the directors have recommended the payment of a final dividend of 55 cents per share, franked to 27.5 cents per share (2006: ordinary dividend of 40 cents per share unfranked). The aggregate amount of the proposed dividend, based on the number of shares on issue at the date of this report, is expected to be paid on 12 October 2007 out of retained earnings at 30 June 2007, but not recognised as a liability:
100,673
72,756
100,673
72,756
Franked dividends The amount of retained profits and reserves that could be distributed as fully franked dividends from franking credits that exist or will arise after payment of income tax in the next year, excluding debits attaching to the final dividend not recognised at year end: Franked to 30%
13,823
-
13,823
-
1,989,804
2,108,525
1,158,596
1,484,336
395,044
224,389
445,221
17,370
29,840
(229,365)
29,840
(229,365)
(162,534)
(124,394)
(162,534)
(124,394)
Dividends Dividends paid Dividends recognised in the current year by the Company are: Final ordinary dividend of 40 cents per share, unfranked, paid on 13 October 2006 (2006: 30 cents per share, fully franked) Special dividend of 10 cents per share, franked to 1.78 cents, paid on 10 October 2005 Interim ordinary dividend of 49 cents per share, unfranked, paid on 13 April 2007 (2006: 28 cents per share, unfranked)
23
Equity Total equity at the beginning of the financial year Total recognised income and expense for the year attributable to equity holders Movement in contributed equity Dividends Movement in share based payments reserve Total equity at the end of the financial year
16,695
10,649
16,695
10,649
2,268,849
1,989,804
1,487,818
1,158,596
29
CSL Limited and its controlled entities
Notes to the Financial Statements (continued) for the year ended 30 June 2007
Notes 24 (a)
(b)
Consolidated Group 2007 2006 $000 $000
Parent Company 2007 2006 $000 $000
Statement of Cash Flows Reconciliation of cash and cash equivalents and noncash financing and investing activities Cash at the end of the year is shown in the cash flow statement as: Cash at bank and on hand
6
137,629
384,064
-
28,066
Cash deposits
6
342,608
369,630
-
149,224
Bank overdrafts
15
Reconciliation of Profit after tax to Cash Flows from Operations Profit after tax
(5,706)
(58,723)
-
474,138
(6,099)
747,988
(58,723)
177,290
438,130
16,034
539,299
117,357
Non-cash items in profit after tax Contingent consideration
-
233,536
-
-
Depreciation and amortisation
132,569
116,064
42,135
31,122
(Gain)/loss on disposal of property, plant and equipment
222
(421)
-
75
Finance costs
368
1,351
-
-
6,895
7,360
-
-
-
-
9,795
4,684
9,795
4,684
Unwinding of discount Dividends and management fees Share based payments expense Changes in assets and liabilities, net of the effects of purchase / disposal of subsidiaries: (Increase)/decrease in trade and other receivables
(431,175)
-
(104,581)
24,704
(13,171)
(16,803)
(257,762)
30,500
(2,992)
(6,975)
(Increase)/decrease in retirement benefit assets
(9,046)
(19,342)
(6,047)
213
Increase/decrease in net tax assets and liabilities
59,452
20,360
(1,858)
9,742
Increase/(decrease) in trade and other payables
93,210
(6,066)
20,979
10,751
597
1,504
597
1,504
Increase/(decrease) in provisions
1,781
(3,713)
9,580
5,862
Increase/(decrease) in retirement benefit liabilities
8,041
(5,714)
5,763
480,840
522,164
71,736
(Increase)/decrease in inventories
Increase/(decrease) in deferred government grants
Net cash inflow from operating activities
(158) 56,051
30
CSL Limited and its controlled entities
Notes to the Financial Statements (continued) for the year ended 30 June 2007
Consolidated Group 2007 2006 $000 $000 25
Employee benefits A reconciliation of the employee benefits recognised is as follows: Retirement benefit assets – non-current (note 13)
11,983
Retirement benefit liabilities – current (note 13)
7,887
1,840
-
4,635
-
-
Provision for employee benefits – current (note 17)
61,197
66,237
27,473
24,805
Retirement benefit liabilities – non-current (note 13)
84,468
90,588
-
-
Provision for employee benefits – non-current (note 17)
40,771
52,586
4,420
4,221
186,436
214,046
31,893
29,026
8,423
7,575
1,487
1,427
The number of full time equivalents employed at 30 June (a)
3,514
Parent Company 2007 2006 $000 $000
Defined benefit plans The Group sponsors a range of defined benefit Pension plans that provide pension benefits for its worldwide employees upon retirement. Entities of the Group who operate the defined benefit plans contribute to the respective plans in accordance with the Trust Deeds, following the receipt of actuarial advice. Movements in the net liability/(asset) for defined benefit obligations recognised in the balance sheet Net liability/(asset) for defined benefit obligation: Opening balance
91,709
95,617
(1,840)
159
(13,749)
(38,732)
(2,069)
(1,898)
(2,309)
(1,849)
-
-
14,827
14,218
1,785
1,952
(10,270)
15,877
(5,763)
(2,053)
146
60
-
-
Currency translation differences
(7,869)
6,518
-
-
Closing balance
72,485
91,709
(7,887)
(1,840)
(11,983)
(3,514)
(7,887)
(1,840)
-
4,635
-
-
Retirement benefit liabilities – non-current (note 13)
84,468
90,588
-
-
Net liability/(asset)
72,485
91,709
(7,887)
(1,840)
Contributions received Benefits paid Expense/(benefit) recognised in the income statement (refer below) Actuarial (gains)/losses recognised in equity Other movements
Net liability/(asset) for defined benefit obligation is reconciled to the balance sheet as follows: Retirement benefit assets – non-current (note 13) Retirement benefit liabilities – current (note 13)
Amounts for the current and previous periods are as follows: Consolidated Group
Parent Company
2007
2006
2005
2007
2006
$000
$000
$000
$000
$000
2005 $000
Defined benefit obligation
371,106
477,637
421,558
26,661
26,903
26,199
Plan assets
298,621
385,928
325,941
34,548
28,743
26,040
Surplus/(deficit)
(72,485)
(91,709)
(95,617)
7,887
1,840
(159)
Experience adjustments on plan liabilities
(1,983)
(10,562)
(30,289)
2,038
959
(1,115)
Experience adjustments on plan assets
12,253
(5,316)
5,969
3,725
1,094
1,170
Actual return on plan assets
28,018
11,924
25,129
5,736
2,910
2,812
The Group and the Parent Company have used the AASB 1 exemption and disclosed amounts under AASB 1.20A(p) above for each annual reporting period prospectively from the AIFRS transition date (1 July 2004).
31
CSL Limited and its controlled entities
Notes to the Financial Statements (continued) for the year ended 30 June 2007
Consolidated Group 2007 2006 $000 $000 25
Employee benefits (continued)
(a)
Defined benefit plans (continued) Changes in the present value of the defined benefit obligation are as follows: Opening balance
Parent Company 2007 2006 $000 $000
477,637
421,558
26,903
Service cost
15,323
14,514
2,516
2,627
Interest cost
14,734
16,006
1,280
1,141 -
Past service costs
26,199
535
938
-
Contributions by members
3,665
3,086
-
Actuarial (gains)/losses
1,983
10,562
(2,038)
(959)
(93,028)
(12,837)
(1,135)
(1,593)
(719)
(452)
(865)
(512)
Currency translation differences
(49,024)
24,262
-
-
Closing balance
371,106
477,637
26,661
26,903
Benefits paid Other movements
The present value of the defined benefit obligation comprises: Present value of wholly unfunded obligations Present value of funded obligations
-
77,721
81,034
-
-
293,385
396,603
26,661
26,903
371,106
477,637
26,661
26,903
Changes in the fair value of plan assets are as follows: 385,928
325,941
28,743
26,040
Expected return on plan assets
Opening balance
15,765
17,240
2,011
1,816
Actuarial gains/(losses) on plan assets
12,253
(5,316)
3,725
1,094
Contributions by employer
13,749
38,732
2,069
1,898
Contributions by members Benefits paid Other movements
3,665 (90,719)
3,087
-
-
(10,988)
(1,135)
(1,593)
(865)
(512)
(865)
(512)
Currency translation differences
(41,155)
17,744
-
-
Closing balance
298,621
385,928
34,548
28,743
The major categories of plan assets as a percentage of total plan assets is as follows: Cash
6.2%
15.7%
6.0%
8.1%
41.6%
28.9%
69.0%
59.9%
Debt instruments
42.0%
44.8%
9.0%
22.3%
Property
10.2%
8.8%
16.0%
9.7%
Equity instruments
Other assets
100.0%
Expenses/(gains) recognised in the income statement are as follows: Current service costs Interest on obligation Expected return on assets Past service costs Total included in employee benefits expense
1.8% 100.0%
-
-
100.0%
100.0%
15,323
14,514
2,516
2,627
14,734
16,006
1,280
1,141
(15,765)
(17,240)
(2,011)
(1,816)
535
938
-
-
14,827
14,218
1,785
1,952
32
CSL Limited and its controlled entities
Notes to the Financial Statements (continued) for the year ended 30 June 2007
Consolidated Group 2007 2006 $000 $000 25
Employee benefits (continued)
(a)
Defined benefit plans (continued)
Parent Company 2007 2006 $000 $000
The principal actuarial assumptions at the balance sheet date (expressed as weighted averages) are as follows: Discount rate Expected return on assets and expected long-term rate 1 of return on assets Future salary increases Future pension increases
4.0%
4.2%
5.8%
4.9%
5.2%
5.8%
7.0%
7.0%
2.0%
2.6%
5.0%
0.3%
0.6%
5.0%
-
5.0%
1
The expected long-term rate of return is based on the portfolio as a whole.
Surplus/(deficit) for each defined benefit plan on a funding basis Plan 1 assets $000
Consolidated Group – June 2007
CSL Pension Plan (Australia)
2
CSL Bioplasma AG Pension Fund (Switzerland) CSL Behring Pension Plan (US PP)
3
4
CSL Behring Union Pension Plan (US UPP)
Accrued 1 benefit $000
Plan surplus / (deficit) $000
34,548
(26,661)
7,887
213,998
(209,902)
4,096
-
-
-
50,075
(56,822)
(6,747)
CSL Behring GmbH Pension Plan (Germany)
-
(66,667)
(66,667)
CSL Pharma GmbH Pension Plan (Germany)
-
(1,591)
(1,591)
CSL Behring KG Pension Plan (Germany)
-
(2,937)
(2,937)
CSL Plasma Services GmbH Pension Plan (Germany)
-
(124)
(124)
CSL Behring KK Retirement Allowance Plan (Japan)
-
(6,402)
(6,402)
298,621
(371,106)
(72,485)
Consolidated Group – June 2006 2 CSL Pension Plan (Australia)
28,743
(26,903)
1,840
222,181
(220,506)
1,675
CSL Behring Pension Plan (US PP)
82,102
(86,657)
(4,555)
CSL Behring Union Pension Plan (US UPP)
52,902
(62,537)
(9,635)
CSL Behring GmbH Pension Plan (Germany)
-
(69,779)
(69,779)
CSL Pharma GmbH Pension Plan (Germany)
-
(1,819)
(1,819)
CSL Behring KG Pension Plan (Germany)
-
(2,932)
(2,932)
CSL Plasma Services GmbH Pension Plan (Germany)
-
(146)
(146)
CSL Behring KK Retirement Allowance Plan (Japan)
-
(6,358)
(6,358)
385,928
(477,637)
(91,709)
CSL Bioplasma AG Pension Fund (Switzerland)
1
Plan assets at net market value, and accrued benefits have been calculated at 31 May, being the date of the most recent financial statements of the plans. 2
The CSL Pension Plan (Australia) is also the defined benefit plan of the Parent Company. On 1 June 2007 the CSL Pension Plan ceased operation as a stand alone fund. The Assets and Liabilities of the Plan were transferred to AustralianSuper under a Successor Fund Transfer Deed and the Plan now operates as a sub-plan of AustralianSuper. 3 The CSL Behring AG Pension Fund has a surplus of $19,152,000. However, $15,056,000 of the economic benefits associated with this surplus are not available to the CSL Group, and therefore has not been recognised above. 4 The CSL Behring defined benefit pension plan was closed during the year and all members were paid out their entitlements. There was no settlement gain or loss on the closure. (b)
Defined contribution plans The Group and Parent Company makes contributions to various defined contribution pension plans. The amounts recognised as an expense for the year ended 30 June 2007 was $15,420,000 and $10,398,000 respectively (2006: $14,623,000 and $9,610,000).
33
CSL Limited and its controlled entities
Notes to the Financial Statements (continued) for the year ended 30 June 2007
26 (a)
Share based payments Share based payment schemes The Company operates the following schemes that entitles key management personnel and senior employees to purchase shares in the company: Revised Senior Executive Share Ownership Plan (SESOP II) The establishment of the SESOP II plan was approved by special resolution at the annual general meeting of the Company on 20 November 1997. Under the rules of SESOP II no loan is made to the recipients of options until the option is exercised. Consequently, no amounts are recorded in receivables until the option is exercised. The options are issued for a term of seven years and begin to be exercisable after the third anniversary of the date of grant. The options cannot be transferred and are not quoted on the ASX. Performance hurdles for both the Group and employees must be met before the options can be exercised. The exercise price is calculated using the weighted average price over the 5 days preceding the issue date of the option.
Employee Performance Rights Plan (Performance Rights) The establishment of the Employee Performance Rights Plan (Performance Rights) was approved by special resolution at the annual general meeting of the Company on 16 October 2003. Unless otherwise determined by the Board, Performance Rights will be granted for no consideration payable by the employee. A Performance Right represents the right to subscribe for or acquire one share for either nil or monetary consideration not exceeding $1.00 per share. A Performance Right may only be exercised when it has become a Vested Performance Right. Unvested Performance Rights cannot be exercised. Vested Performance Rights can be exercised from the date they become Vested Performance Rights until they lapse. Performance Rights may become Vested Performance Rights if the Company satisfies specified Performance Hurdles during specified Performance Periods. The Performance hurdle is the Company's Total Shareholder Return (TSR) relative to the ASX top 100 index (excluding commercial banks, oil and gas and selected metals and mining companies). The Performance Period is 3 years (or, if not fully met after 3 years, then 4 years or 5 years) with the Test Dates occurring at the end of Years 3, 4 and 5. The Performance Hurdles will 'cascade' so that a proportion of Performance Rights become Vested Performance Rights when a minimum target is reached, and the proportion will increase as performance exceeds the minimum target. If, on any Test Date, the Company's performance does not place it above the 50th percentile, in terms of TSR ranking, none of the Performance Rights will vest. Where the Company is placed at or above the 75th percentile, all of the Performance Rights will vest. Between the 50th and 75th percentiles, the proportion of Performance Rights that will vest will increase on a straight-line basis. No loans are provided by the Company in relation to the grant of Performance Rights to, or exercise of Performance Rights by, employees under the Performance Rights Plan.
Long Term Incentive Plan The Long Term Incentive Plan became effective in October 2006. Under the Plan, the long-term incentive grants made to executives incorporate both Performance Rights and Performance Options (each with a different performance hurdle). Each long-term incentive grant generally consists of 50% Performance Rights and 50% Performance Options. A Performance Right represents the right to subscribe for or acquire one share for either nil or monetary consideration not exceeding $1.00 per share. The Performance Options are issued for nil consideration with an exercise price equal to the volume weighted average CSL share price over the week up to and including the day of grant. The performance hurdle attached to Performance Rights is a relative TSR hurdle with a peer group of the companies comprising the ASX top 100 by market capitalisation (excluding companies with the GICS industry codes of commercial banks, oil and gas and metals and mining). Vesting will occur where the Company’s TSR ranking is at or above the 50th percentile. The performance hurdle for the Performance Options is an earnings per share (EPS) measure. The initial target is 10% compound EPS growth per annum measured from 30 June in the financial year preceding the grant of options until 30 June in the financial year prior to the relevant test date. Either none or a portion of the Performance Options are exercisable depending on whether this target is achieved. Performance Rights and Performance Options are issued for a term of seven years. Current offers provide for a portion becoming exercisable, subject to satisfying the relevant performance hurdle, after the second anniversary of the date of grant. Full vesting does not occur until fours years post grant date. If the portion tested at the applicable anniversary meets the relevant performance hurdle, that portion of rights and options vest and become exercisable until the expiry date. If the portion tested fails to meet the performance hurdle the portion will be carried over to the next anniversary and retested. After the fifth anniversary, any Performance Rights and Performance Options not vested will lapse. Importantly, there is an individual employee hurdle requiring an executive to obtain for the financial year prior to exercise of the Performance Rights and Performance Options, a satisfactory (or equivalent) rating under the Company’s performance management system. There are no company provided loans as part of the current long-term incentive arrangements. Global Employee Share Plan (GESP) Global Employee Share Plan (GESP) operates whereby employees make contributions from after tax salary up to a maximum of $3,000 per contribution period. The employees receive the shares at a 15% discount to the applicable market rate, as quoted on the ASX on the first day or the last day of the six month contribution period, whichever is lower.
34
CSL Limited and its controlled entities
Notes to the Financial Statements (continued) for the year ended 30 June 2007
26
Share based payments (continued)
(b)
Outstanding share based payment equity instruments The number and exercise price for each share based payment scheme outstanding is presented as follows. All options are settled by physical delivery of shares. June 2007
Opening Balance
Granted Exercised
Forfeited
Lapsed
Closing balance
Exercise Price
Expiry date
Vested at 30 June 2007
Options (by grant date) 2 August 2000*
50,300
-
(50,300)
-
-
-
$34.04
02-Aug-07
20 June 2001*
143,420
-
(143,420)
-
-
-
$37.54
20-Jun-08
-
21 August 2001*
90,000
-
(50,000)
-
-
40,000
$49.31
20-Aug-08
40,000
23 August 2001*
85,000
-
(71,920)
-
-
13,080
$37.54
22-Aug-08
13,080
10 December 2001*
38,200
-
(32,000)
-
-
6,200
$49.94
09-Dec-08
6,200
554,090
-
(321,870)
-
-
232,220
$27.97
23-Jul-09
-
12,000
-
(6,000)
-
-
6,000
$20.67
16-Oct-09
-
340,700
-
(189,420)
(19,000)
-
132,280
$12.19
01-Jul-10
-
-
452,480
(1,700)
-
450,780
$52.44
02-Oct-13
1,313,710
452,480
(20,700)
-
880,560
23 July 2002* 16 October 2002* 1 July 2003 6 October 2006
(864,930)
-
59,280
Performance Rights (by grant date) 16 October 2003
50,000
-
(20,000)
-
-
30,000
Nil
27-Oct-10
128,600
-
(110,300)
(1,700)
-
16,600
Nil
27-Oct-10
16,600
28 April 2004
60,000
-
-
-
60,000
Nil
31-Mar-11
60,000
21 June 2004
15 December 2003
-
116,600
-
(5,800)
-
19,300
Nil
31-Mar-11
19,300
29 October 2004
82,600
-
-
(4,100)
-
78,500
Nil
25-Aug-11
-
15 July 2005
55,000
-
-
-
-
55,000
Nil
07-Jun-12
-
338,750
-
-
(12,550)
-
326,200
Nil
07-Jun-12
-
07 September 2005
(91,500)
30,000
07 March 2006
52,500
-
-
-
-
52,500
Nil
20-Dec-12
-
06 April 2006
40,850
-
-
-
-
40,850
Nil
20-Dec-12
-
-
163,400
-
(760)
-
162,640
Nil
02-Oct-13
924,900
163,400
(24,910)
-
841,590
06 October 2006
(221,800)
125,900
GESP (by grant date) 1 March 2006
32,727
-
(32,727)
-
-
-
$41.95
31-Aug-06
1 September 2006
-
33,546
(33,546)
-
-
-
$43.04
28-Feb-07
-
1 March 2007#
-
22,097
-
-
22,097
$65.62
31-Aug-07
-
32,727
55,643
-
-
22,097
-
(45,610)
-
1,744,247
185,180
Total
2,271,337
(66,273)
671,523 (1,153,003)
-
* AASB 2 has not been applied to these options as they were issued before 7 November 2002. # As noted above, the exercise price at which GESP plan shares are issued is calculated at a 15% discount to the lower of the ASX market price on the first and last dates of the contribution period. Accordingly the exercise price and the final number of shares issued is not yet known (and may differ from the assumptions and fair values disclosed below). The above disclosures are estimated based on information available as at 30 June 2007.
The weighted average share price at the dates of exercise, by equity instrument type, is as follows: Options Performance Rights GESP
$61.02 $64.74
35
CSL Limited and its controlled entities
Notes to the Financial Statements (continued) for the year ended 30 June 2007
26
Share based payments (continued)
(b)
Outstanding share based payment equity instruments (continued) The number and exercise price for each share based payment scheme outstanding is presented as follows. All options are settled by physical delivery of shares. June 2006
Opening Balance
Granted Exercised
Forfeited
Lapsed
Closing balance
Exercise Price
Expiry date
Vested at 30 June 2006
Options (by grant date) 16 November 1999*
17,000
-
(17,000)
-
-
-
$20.84
16-Nov-06
-
28 February 2000*
12,000
-
(12,000)
-
-
-
$21.01
28-Feb-07
-
9 February 2000*
40,000
-
(40,000)
-
-
-
$23.07
09-Feb-07
-
2 August 2000*
558,980
-
(467,580)
(41,100)
-
50,300
$34.04
02-Aug-07
50,300
20 June 2001*
(462,680)
(28,300)
-
143,420
$37.54
20-Jun-08
143,420
-
90,000
$49.31
20-Aug-08
90,000
85,000
$37.54
22-Aug-08
85,000
634,400
-
21 August 2001*
90,000
-
-
23 August 2001*
126,000
-
-
(41,000)
-
5,000
-
-
(5,000)
-
-
$43.51
20-Aug-08
-
63,000
-
-
38,200
$49.94
09-Dec-08
38,200
18 October 2001* 10 December 2001* 28 January 2002* 23 July 2002* 16 October 2002* 1 July 2003
(24,800)
-
20,000
-
-
-
$47.20
28-Jan-09
-
1,013,700
-
(459,610)
-
-
554,090
$27.97
23-Jul-09
554,090
30,000
-
(18,000)
-
-
12,000
$20.67
16-Oct-09
12,000
392,900
-
(52,200)
-
-
340,700
$12.19
01-Jul-10
(135,400)
-
1,313,710
3,002,980
-
-
- (1,553,870)
(20,000)
973,010
Performance Rights (by grant date) 16 October 2003
50,000
-
-
-
-
50,000
Nil
27-Oct-10
128,600
-
-
-
-
128,600
Nil
27-Oct-10
-
28 April 2004
60,000
-
-
-
-
60,000
Nil
31-Mar-11
-
21 June 2004
132,300
-
-
(15,700)
-
116,600
Nil
31-Mar-11
-
83,400
-
-
(800)
-
82,600
Nil
25-Aug-11
-
15 December 2003
29 October 2004
-
15 July 2005
-
55,000
-
-
-
55,000
Nil
07-Jun-12
-
7 September 2005
-
346,750
-
(8,000)
-
338,750
Nil
07-Jun-12
-
7 March 2006
-
52,500
-
-
-
52,500
Nil
20-Dec-12
-
6 April 2006
-
40,850
-
-
-
40,850
Nil
20-Dec-12
-
454,300
495,100
-
(24,500)
-
924,900
-
GESP (by grant date) 1 March 2006
29,789
-
(29,789)
-
-
-
$27.59
1 September 2006
-
32,990
(32,990)
-
-
-
$29.46
28-Feb-06
-
1 March 2007#
-
22,072
-
-
22,072
$44.17
31-Aug-06
-
29,789
55,062
Total
3,487,069
(62,779)
550,162 (1,616,649)
(159,900)
31-Aug-05
-
22,072 -
2,260,682
973,010
* AASB 2 has not been applied to these options as they were issued before 7 November 2002. # As noted above, the exercise price at which GESP plan shares are issued is calculated at a 15% discount to the lower of the ASX market price on the first and last dates of the contribution period. Accordingly the exercise price and the final number of shares issued is not yet known (and may differ from the assumptions and fair values disclosed below). The above disclosures are estimated based on information available as at 30 June 2006.
The weighted average share price at the dates of exercise, by equity instrument type, is as follows: Options Performance Rights GESP
$47.99 $44.18
36
CSL Limited and its controlled entities
Notes to the Financial Statements (continued) for the year ended 30 June 2007
26
Share based payments (continued)
(c)
Valuation assumptions and fair values of equity instruments granted The fair value of services received in return for equity instruments granted are measured by reference to the fair value of equity instruments granted. The estimate of fair value of the services received is measured based on a combination of the Binomial and Black Scholes option valuation methodologies. The expected vesting period of equity instruments is also used as an input into the valuation model applied. The following tables summarise the assumptions and fair values of unexercised equity instruments issued after 7 November 2002: Fair Value1
Share Price
Exercise Price
Expected volatility2
Life assumption
Expected dividend yield
Risk free interest rate
Options (by grant date) 1 July 2003
$4.58
$12.08
$12.19
37.0%
3–5 years
2.5%
5.60%
2 October 2006 – Tranche 1
$17.12
$54.03
$52.44
2 years
1.5%
5.67%
2 October 2006 – Tranche 2
$17.50
$54.03
$52.44
27.0% 27.0%
3 years
1.5%
5.67%
2 October 2006 – Tranche 3
$17.87
$54.03
$52.44
27.0%
4 years
1.5%
5.67%
16 October 2003
$10.52
$16.25
Nil
37.0%
4 years
2.5%
5.61%
15 December 2003
$11.33
$17.51
Nil
37.0%
4 years
2.5%
5.79%
28 April 2004
$15.14
$22.91
Nil
35.0%
4 years
2.0%
5.71%
21 June 2004
$14.34
$21.72
Nil
34.0%
4 years
2.0%
5.63%
29 October 2004
$20.69
$28.80
Nil
34.0%
4 years
2.0%
5.32%
15 July 2005
$24.51
$34.90
Nil
27.0%
4 years
1.5%
5.19%
7 September 2005
$24.40
$34.75
Nil
27.0%
4 years
1.5%
5.10% 5.37%
Performance Rights (by grant date)
7 March 2006
$43.58
$53.25
Nil
27.0%
4 years
1.5%
6 April 2006
$42.97
$53.41
1.5%
5.51%
$42.59
$54.03
27.0% 27.0%
4 years
2 October 2006 – Tranche 1
Nil Nil
2 years
1.5%
5.67%
2 October 2006 – Tranche 2
$39.96
$54.03
Nil
27.0%
3 years
1.5%
5.67%
2 October 2006 – Tranche 3
$37.40
$54.03
Nil
27.0%
4 years
1.5%
5.67%
5.70%
GESP (by grant date)
3
1 September 2004
$5.97
$26.03
$22.09
34.0%
6 months
2.0%
1 March 2005
$7.60
$33.11
$28.14
34.0%
6 months
2.0%
5.70%
1 September 2005
$6.19
$34.52
$29.46
27.0%
6 months
1.5%
5.10%
$10.89
$51.97
$44.17
27.0%
6 months
1.5%
5.37%
$8.57
$50.63
$43.04
27.0%
6 months
1.5%
6.43%
$13.07
$77.20
$65.62
27.0%
6 months
1.5%
6.41%
1 March 2006 1 September 2006 1 March 2007
1
Equity instruments are granted under a service condition and a non-market performance condition. Such conditions are not taken into account in the determination of fair value at grant date. The market conditions associated with equity instruments are incorporated into the determination of the fair value at grant date.
2 The expected volatility is based on the historic volatility (calculated based on the remaining life assumption of each equity instrument), adjusted for any expected changes to future volatility due to publicly available information.
3
The fair value of GESP equity instruments is estimated based on the assumptions prevailing on the grant date. In accordance with the terms and conditions of the GESP plan, shares are issued at the lower of the ASX market price on the first and last dates of the contribution period.
37
CSL Limited and its controlled entities
Notes to the Financial Statements (continued) for the year ended 30 June 2007 27 Key management personnel disclosures The following were key management personnel of the Group at any time during the reporting period and unless otherwise indicated were key management personnel for the entire period: Non-executive directors
Executive directors
E A Alexander (Chairman)
B A McNamee (Chief Executive Officer and Managing Director)
I A Renard
A M Cipa (Finance Director)
M A Renshaw K J Roberts
Executives
J Shine
P Turner (President, CSL Behring)
J Akehurst
C Armit (President, CSL Biotherapies)
D Simpson (appointed 1 September 2006)
A Cuthbertson (Chief Scientific Officer)
P H Wade (retired 30 September 2006)
P Turvey (Company Secretary and General Counsel)
A C Webster (retired 18 October 2006)
T Giarla (President, CSL Bioplasma) A von Bibra (General Manager, Human Resources ) M Sontrop (General Manager, CSL Biotherapies Australia & New Zealand)
(a)
Total compensation for key management personnel Consolidated Group $
$
2007
2006
Parent Company $
$
2007
2006
Short term Salary and Fees
6,952,254
6,192,904
6,115,728
5,306,879
Short term incentive cash bonus
3,021,752
4,271,247
2,181,889
3,384,564
246,984
365,655
243,765
331,271
10,220,990
10,829,806
8,541,382
9,022,714
Pension benefits
628,236
520,348
510,217
441,652
Retirement benefits
839,072
-
839,072
-
1,467,308
520,348
1,349,289
441,652
376,348
447,035
306,279
361,843
-
-
-
-
2,649,898
1,625,820
2,255,228
1,416,676
704,624
998,719
592,207
840,379
3,354,522
2,624,539
2,847,435
2,257,055
15,419,168
14,421,728
13,044,385
12,083,264
Non-monetary benefits Total
Post-employment
Total Other long-term - Long service leave and equivalents Termination benefits
Share-based payments Equity settled performance rights Equity settled options
Total
The Group has applied the relief granted in Regulation 2M.6.04 of the Corporations Act to disclose certain compensation information required by AASB 124 Related Parties Disclosure in respect of key management personnel in the Directors’ Report.
38
CSL Limited and its controlled entities
Notes to the Financial Statements (continued) for the year ended 30 June 2007 27 Key management personnel disclosures (continued) (b) Loans to key management personnel and their related parties (Group) Details regarding the aggregate of loans made, guaranteed or secured by any entity in the Group to key management personnel and their related parties, and the number of individuals in each group, are as follows:
Total for key management personnel
Total for other related parties Total for key management personnel and their related parties
Opening balance $
Interest charged $
Closing balance $
Number in group
2007
5,431,000
63,000
1,006,000
9
2006
5,982,000
149,000
5,385,000
10
2007
-
-
-
-
2006
-
-
-
-
2007
5,431,000
63,000
1,006,000
9
2006
5,982,000
149,000
5,385,000
10
Details regarding loans outstanding at the reporting date to key management personnel and their related parties at any time during the reporting period, are as follows: Balance at 1 July 2006 $
Interest charged $
Balance at 30 June 2007 $
Highest owing in period $
Interest not charged $
Executive Directors B A McNamee A M Cipa Key Management Personnel P Turner
447,000
24,000
-
447,000
3,000
46,000
2,000
46,000
897,000
9,000
110,000
6,000
110,000
110,000
3,000
C Armit
1,615,000
9,000
-
1,615,000
40,000
A Cuthbertson
1,511,000
7,000
420,000
1,511,000
34,000
P Turvey
1,702,000
11,000
-
1,702,000
81,000
A von Bibra
-
-
-
295,000
2,000
T Giarla
-
-
-
-
-
M Sontrop
-
6,000
431,000
431,000
17,000
All of the loans relate to SESOP and SESOP II under which key management personnel were provided with loans to fund the exercise of options. SESOP was terminated by the Company and there are no longer any outstanding options under this plan. No grants of options have been made under SESOP II since July 2003. Loans to key management personnel relating to SESOP are interest free. Loans relating to SESOP II are charged interest at a concessional average rate of 2.5%. This is based on interest being charged equivalent to the after-tax cash amount of dividends on the underlying shares (excluding the impact of imputation and assuming a marginal income tax rate of 46.5%). The average commercial rate of interest during the year was 8.07%. (c) Other key management personnel transactions with the company or its controlled entities The key management personnel and their related entities have the following transactions with entities within the Group that occur within a normal employee, customer or supplier relationship on terms and conditions no more favourable than those which it is reasonable to expect the entity would have adopted if dealing at arm’s length in similar circumstances: •
The Company has a number of contractual relationships, including property leases and collaborative research arrangements, with the University of Melbourne of which Mr Ian Renard is the Chancellor and Miss Elizabeth Alexander is the Chair of the Finance Committee and a member of the Council.
39
CSL Limited and its controlled entities
Notes to the Financial Statements (continued) for the year ended 30 June 2007 27 Key management personnel disclosures (continued) (d) Options over equity instruments granted as compensation The movement during the reporting period in the number of options over ordinary shares in the Company held directly, indirectly or beneficially, by each key management person, including their related parties, is as follows:
Options
Balance at 1 July 2006
Number Granted
Number Exercised
Number Lapsed / Forfeited
Balance at 30 June 2007
Number Vested during the year
Vested and exercisable at 30 June 2007
Executive Directors B A McNamee
-
52,920
-
-
52,920
-
-
25,000
19,380
25,000
-
19,380
-
-
P Turner
30,000
19,380
-
-
49,380
15,000
C Armit
50,000
-
40,000
-
10,000
10,000
-
A Cuthbertson
30,000
10,840
15,000
-
25,840
15,000
-
A M Cipa Executives
15,000
P Turvey
20,000
8,460
10,000
-
18,460
10,000
-
T Giarla
58,500
8,580
35,000
-
32,080
9,000
-
A von Bibra
18,480
6,240
13,200
-
-
M Sontrop
31,600
7,080
21,600
263,580
132,880
159,800
Total
-
11,520
13,200
17,080
21,600
236,660
93,800
15,000
Options were granted during the current year as follows: Date granted
Tranche
Expiry date
October 2006
Tranche 1
October 2013
Exercise price $52.44
October 2006
Tranche 2
October 2013
$52.44
$17.50
October 2006
Tranche 3
October 2013
$52.44
$17.87
Fair value $17.12
No options have been granted since the end of the financial year. The options have been provided at no cost to the recipients. For further details, including the key terms and conditions, grant and exercise dates for options granted to executives, refer note 26. (e) Performance Rights over equity instruments granted as compensation The movement during the reporting period in the number of performance rights over ordinary shares in the Company held directly, indirectly or beneficially, by each key management person, including their related parties, is as follows: Performance Rights
Balance at 1 July 2006
Number Granted
Number Exercised
Number Lapsed / Forfeited
Balance at 30 June 2007
Number Vested during the year
Vested and exercisable at 30 June 2007
Executive Directors B A McNamee
147,500
15,640
-
-
163,140
70,000
70,000
70,000
5,720
20,000
-
55,720
40,000
20,000
P Turner
54,350
5,720
24,800
-
35,270
24,800
-
C Armit
21,850
-
8,400
-
13,450
8,400
-
A Cuthbertson
25,350
3,200
11,100
-
17,450
11,100
-
A M Cipa Executives
P Turvey
27,350
2,500
17,100
-
12,750
17,100
-
T Giarla
12,850
2,540
-
-
15,390
-
-
A von Bibra M Sontrop Total
4,800
1,840
1,500
-
5,140
1,500
-
13,450
2,100
6,100
-
9,450
6,100
-
377,500
39,260
89,000
327,760
179,000
-
90,000
For further details, including the key terms and conditions, grant and exercise dates for options granted to executives, refer note 26.
40
CSL Limited and its controlled entities
Notes to the Financial Statements (continued) for the year ended 30 June 2007 27 Key management personnel disclosures (continued) (e) Performance Rights over equity instruments granted as compensation (continued) Performance Rights were granted during the current year as follows: Date granted
Tranche
Expiry date
October 2006
Tranche 1
October 2013
Exercise price $0
October 2006
Tranche 2
October 2013
$0
39.96
October 2006
Tranche 3
October 2013
$0
37.40
Fair value 42.59
No Performance Rights have been granted since the end of the financial year. The Performance Rights have been provided at no cost to the recipients. For further details, including the key terms and conditions, grant and exercise dates for all Performance Rights granted to executives, refer note 26. Modification of terms of equity-settled share-based payment transactions No terms of equity-settled share-based payment transactions (including options and performance rights granted as compensation to a key management person) have been altered or modified by the issuing entity during the reporting period.
(f) Exercise of equity instruments granted as compensation During the reporting period, the following shares were issued on the exercise of options granted as compensation: 30 June 2007 Date Option Granted
30 June 2006
Number of shares
Paid per share $
Date Option Granted
Number of shares
Paid per share $
Directors B A McNamee
-
-
-
-
-
-
August 2000
25,000
$34.04
August 2000
50,000
$34.04
-
-
-
July 2002
45,000
$27.97
-
-
-
August 2000
100,000
$34.04
C Armit
July 2002
40,000
$27.97
February 2000
40,000
$23.07
A Cuthbertson
July 2002
15,000
$27.97
February 2000
12,000
$21.01
-
-
-
July 2002
45,000
$27.97
July 2002
10,000
$27.97
August 2000
50,000
$34.04
-
-
-
July 2002
30,000
$27.97
T Giarla
June 2001
35,000
$37.54
July 2003
45,000
$12.19
A von Bibra
June 2001
5,280
$37.54
June 2001
21,120
$37.54
July 2003
7,920
$12.19
-
-
-
June 2001
6,600
$37.54
-
-
-
July 2003
15,000
$12.19
-
-
-
A M Cipa Executives P Turner
P Turvey
M Sontrop Total
159,800
438,120
41
CSL Limited and its controlled entities
Notes to the Financial Statements (continued) for the year ended 30 June 2007 27 Key management personnel disclosures (continued) (f) Exercise of equity instruments granted as compensation (continued) During the reporting period, the following shares were issued on the exercise of performance rights granted as compensation: 30 June 2007 Date Performance Right Granted
30 June 2006
Number of shares
Paid per share $
Date Performance Right Granted
Number of shares
Paid per share $
Directors B A McNamee A M Cipa
-
-
-
-
-
-
October 2003
20,000
-
-
-
-
Executives December 2003
12,600
-
-
-
-
June 2004
12,200
-
-
-
-
C Armit
December 2003
8,400
-
-
-
-
A Cuthbertson
December 2003
6,100
-
-
-
-
P Turner
June 2004
5,000
-
-
-
December 2003
7,100
-
-
-
-
June 2004
10,000
-
-
-
-
-
-
-
-
-
-
A von Bibra
June 2004
1,500
-
-
-
-
M Sontrop
June 2004
6,100
-
-
-
-
P Turvey T Giarla
Total
89,000
-
There are no amounts unpaid on the shares as a result of the exercise of options or performance rights.
Movements in shares
Balance at 1 July 2006
Options / Performance Rights Exercised during year
(Shares sold)/ Purchased
Balance at 30 June 2007
293,511
-
(85,000)
208,511
8,547
45,000
(45,000)
8,547
7,626
Executive Directors B A McNamee A M Cipa Non-Executive Directors E A Alexander
7,047
-
579
P H Wade
32,151
-
(32,151)
-
J Akehurst
6,844
-
314
7,158
I A Renard
6,904
-
314
7,218
M A Renshaw
1,190
-
314
1,504
K J Roberts
5,369
-
314
5,683
J Shine
-
-
357
357
D J Simpson
-
-
186
186
A C Webster
9,373
-
(9,373)
-
P Turner
12,242
24,800
(12,200)
24,842
C Armit
70,910
48,400
(110,000)
9,310
A Cuthbertson
57,379
26,100
(57,000)
26,479
P Turvey
51,258
27,100
(76,959)
1,399
-
35,000
(35,000)
-
Executives
T Giarla A von Bibra M Sontrop Total
638
14,700
(14,559)
779
2,056
27,700
(5,959)
23,797
565,419
248,800
(480,823)
333,396
There have been no movements in shareholdings of key management personnel between 30 June 2007 and the date of this report.
42
CSL Limited and its controlled entities
Notes to the Financial Statements (continued) for the year ended 30 June 2007 28 Non key management personnel related party disclosure Ultimate Controlling Entity The ultimate controlling entity is CSL Limited. Identity of related parties The Parent Company has a related party relationship with its subsidiaries (see note 31) and with its key management personnel (see note 27). Other related party transactions The Parent Company entered into the following transactions during the year with related parties in the Group: Wholly owned subsidiaries • Loans were advanced and repayments received on the long term intercompany accounts; • Interest was charged on outstanding intercompany loan account balances; • Sales and purchases of products; • Licensing of intellectual property; • Provision of marketing services by controlled entities; and • Management fees were received from a controlled entity. The sales, purchases and other services were undertaken on commercial terms and conditions. Payment for intercompany transactions is through intercompany loan accounts and may be subject to extended payment terms. Amounts payable to and receivable from parties in the wholly owned subsidiaries are set out in the notes to the financial statements. Partly owned subsidiaries • No transactions occurred during the year. Amounts payable to and receivable from parties in the partly owned subsidiaries are set out in the notes to the financial statements. Transactions with key management personnel and their related parties Disclosures relating to key management personnel are disclosed in note 27. Transactions with other related parties During the year, the parent and subsidiaries made contributions to defined benefit and contribution Pension plans as disclosed in note 25. Ownership interests in related parties The ownership interests in related parties in the Group are disclosed in note 31. All transactions with subsidiaries have been eliminated on consolidation.
43
CSL Limited and its controlled entities
Notes to the Financial Statements (continued) for the year ended 30 June 2007
Consolidated Group 2007 2006 $ $ 29
Remuneration of Auditors Amounts received, or due and receivable, for the audit and review of the financial reports of the Parent Company and its subsidiaries by: Ernst & Young Ernst & Young related practices
Parent Company 2007 2006 $ $
765,771
751,500
765,771
2,297,783
2,541,364
-
751,500 -
3,063,554
3,292,864
765,771
751,500
Amounts received, or due and receivable, for the other services in relation to the Parent Company and its subsidiaries by: Ernst & Young - due diligence / completion audits
16,000
16,000
16,000
16,000
- compliance and other audits
13,850
13,050
13,850
13,050
64,575
181,193
-
-
94,425
210,243
29,850
29,050
3,157,979
3,503,107
795,621
780,550
Ernst & Young related practices - compliance and other audits
30
Commitments and contingencies
(a)
Operating leases Non-cancellable operating lease rentals are payable as follows: Not later than one year Later than one year but not later than five years Later than five years
31,329
35,667
1,464
1,259
83,270
86,466
1,851
2,084
115,722
117,482
123
370
230,321
239,615
3,438
3,713
Operating leases entered into relate predominantly to leased land and rental properties. Rental payments are predominantly fixed, but generally contain inflation escalation clauses on which contingent rentals are determined. No operating leases contain restrictions on financing or other leasing activities. (b)
Finance leases Future minimum lease payments are payable as follows: Not later than one year
4,218
4,771
-
-
Later than one year but not later than five years
15,830
17,416
-
-
Later than five years
41,534
49,160
-
-
Total minimum lease payments
61,582
71,347
-
-
(29,826)
-
-
36,365
41,521
-
-
The present value of finance lease liabilities is as follows: Not later than one year
1,964
2,198
-
-
Later than one year but not later than five years
7,917
8,372
-
-
26,484
30,951
-
-
36,365
41,521
-
-
Future finance charges Finance lease liability
Later than five years
Finance lease – current liability (refer note 15) Finance lease – non-current liability (refer note 15)
(25,217)
1,920
2,111
-
-
34,445
39,410
-
-
36,365
41,521
-
-
Finance leases entered into relate predominantly to leased plant and equipment. Lease payments are generally fixed for the life of the agreement. At the end of the lease term, the Group has the option to purchase the equipment at a discount to market value, a price deemed to be a bargain purchase option. No finance leases contain restrictions on financing or other leasing activities.
44
CSL Limited and its controlled entities
Notes to the Financial Statements (continued) for the year ended 30 June 2007
Consolidated Group 2007 2006 $ $
30
Commitments and contingencies (continued)
(c)
Total lease liability
Parent Company 2007 2006 $ $
Current Finance leases (refer note 15) Surplus lease space (refer note 17)
1,920
2,111
-
-
724
2,343
-
-
2,644
4,454
-
-
34,445
39,410
-
-
-
948
-
-
34,445
40,358
-
-
37,089
44,812
-
-
57,597
40,109
19,295
13,832
1,202
8,160
-
-
-
-
-
-
58,799
48,269
19,295
13,832
Non-current Finance leases (refer note 15) Surplus lease space (refer note 17)
(d)
Capital commitments Capital expenditure contracted for at balance date but not provided for in the financial statements, payable: Not later than one year Later than one year but not later than five years Later than five years
(e)
Contingent assets and liabilities Guarantees The Group and Parent Company provide certain financial guarantees in the ordinary course of business. No liability has been recognised in relation to these guarantees as the fair value of the guarantees is immaterial. Service agreements The maximum contingent liability for benefits under service agreements, in the event of an involuntary redundancy, is between 3 to 12 months. Agreements are held with the managing director and persons who take part in the management of the companies in the Group. The maximum liability that could arise, for which no provisions are included in the financial statements is as follows: Service agreements
7,901
7,683
5,783
5,463
Litigation As noted in the 30 June 2006 Annual Report, the Group was involved in litigation with Bayer over alleged infringement of the Group's interest in the Freudenberg patent covering technology involved in the production of rFVIII. Bayer had filed a counter suit against the Group, claiming breach of the Helixate supply agreement. This litigation has now been settled, and no longer represents a contingency to the Group. The Group is involved in other litigation in the ordinary course of business. The directors believe that future payment of a material amount in respect of litigation is remote. An estimate of the financial effect of this litigation cannot be calculated as it is not practicable at this stage. The Group has disclaimed liability for, and is vigorously defending, all current material claims and actions that have been made. Deed of cross guarantee The Parent Company has entered into a deed of cross guarantee in accordance with a class order issued by the Australian Securities and Investments Commission. The Parent Company, and the subsidiaries which are party to the deed, have guaranteed the repayment of all current and future creditors in the event that any of these companies are wound up. Refer note 33 for details.
45
CSL Limited and its controlled entities
Notes to the Financial Statements (continued) for the year ended 30 June 2007
31
Controlled Entities Country of incorporation
Company: CSL Limited Subsidiaries of CSL Limited: CSL Biotherapies Pty Ltd Cervax Pty Ltd CSL Biotherapies (NZ) Limited Iscotec AB Zenyth Therapeutics Pty Ltd Zenyth Operations Pty Ltd Amrad Pty Ltd CSL International Pty Ltd CSL Finance Pty Ltd CSL Behring ApS CSL Behring AG ZLB GmbH CSL UK Holdings Limited ZLB Bioplasma UK Limited CSLB Holdings Inc CSL Biotherapies Inc ZLB Bioplasma (Hong Kong) Limited CSL Behring LLC CSL Behring Sales Force Inc. ZLB Bioplasma Inc CSL Behring Canada Inc. CSL Behring Brazil Comercio de Produtos Farmaceuticals Ltda CSL Behring KK CSL Behring S.A. de C.V. CSL Behring S.A. CSL Biotherapies GmbH CSL Behring Foundation for Research and Advancement of Patient Health CSL Behring Verwaltungs GmbH CSL Behring Beteiligungs GmbH & Co KG ZLB Plasma Services GmbH CSL Behring GmbH CSL Behring (Switzerland) AG CSL Behring GmbH CSL Behring S.A. CSL Behring A.B. CSL Behring S.p.A. CSL Behring N.V. CSL Behring Lda CSL Behring MEPE CSL Biotherapies Asia Pacific Limited CSL Behring S.A. CSL Behring Holdings Ltd. CSL Behring UK Ltd. ZLB Behring Asia Pacific Limited (a) (b) (c) (d)
Percentage Owned 2007 2006 % %
Australia Australia Australia New Zealand Sweden Australia Australia Australia Australia Australia Denmark Switzerland Germany England England USA USA Hong Kong USA USA USA Canada
100 74 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100
74 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100
(d)
Brazil
100
100
(a)
Japan Mexico France Germany
100 100 100 100
100 100 100 100
(a) (a) (a) (a)
USA
100
100
(a)
Germany Germany Germany Germany Switzerland Austria Spain Sweden Italy Belgium Portugal Greece Hong Kong Argentina England England Hong Kong
100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 -
100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100
(a) (a) (a) (a) (a) (a) (a) (a) (a) (a) (a) (a) (a) (a) (a) (a) (b)
(a) (a) (c) (c) (c)
(a) (a) (a) (a) (a) (a) (a) (a) (a) (a) (a)
Audited by affiliates of the Company auditors. ZLB Behring Asia Pacific Limited was liquidated during the year. Zenyth Therapeutics and its subsidiaries were acquired by CSL Limited during the year. CSL Biotherapies Pty Ltd was incorporated during the year.
46
CSL Limited and its controlled entities
Notes to the Financial Statements (continued) for the year ended 30 June 2007
32
Acquisition of Controlled Entities On 10 November 2006, the Group acquired 100% of the share capital of Zenyth Therapeutics Limited (Zenyth), a Biotechnology company, for a cash consideration of $103,711,000. The acquired business contributed revenues of $3,572,000 and a loss before tax of $5,349,000 to the Group for the period from acquisition to 30 June 2007. This result is included within “Other Human Health” in the Segment Information contained in note 2. If the acquisition had occurred on 1 July 2006, consolidated revenue and consolidated profit for the year ended 30 June 2007 would not have been materially affected. Details of net assets acquired and goodwill are as follows:
$’000 Purchase consideration: Cash paid Direct costs relating to the acquisition Total purchase consideration
103,711 1,870 105,581
Fair value of net identifiable assets acquired (see below)
93,498
Goodwill
12,083
The goodwill attributable to the acquisition of Zenyth represents the know-how of the research staff.
The assets and liabilities arising from the acquisition are as follows:
Cash and cash equivalents Trade and other receivables Other Financial Assets Property Plant & Equipment Intangible Assets Trade and other payables Provisions Net identifiable assets acquired
Acquiree's carrying amount $000
Fair value amount $000
1,642 1,409 40,889 1,383 (5,000) (720) 39,603
1,642 1,409 41,605 610 53,952 (5,000) (720) 93,498
Outflow of cash to acquire business, net of cash acquired: $000 Cash consideration Direct costs relating to the acquisition Cash and cash equivalents in subsidiary acquired Cash outflow on acquisition
(103,711) (1,870) 1,642 (103,939)
Note: Other Financial Assets comprise Unit Trust investments that were converted to cash following the acquisition.
47
CSL Limited and its controlled entities
Notes to the Financial Statements (continued) for the year ended 30 June 2007
33
Deed of Cross Guarantee A deed of cross guarantee between CSL Limited, CSL International Pty Ltd, CSL Finance Pty Ltd, CSL Biotherapies Pty Ltd and Zenyth Therapeutics Pty Ltd was executed on 28 June 2007 and relief was obtained from preparing financial statements of CSL International Pty Ltd, CSL Finance Pty Ltd, CSL Biotherapies Pty Ltd and Zenyth Therapeutics Pty Ltd under the ASIC Class Order. Financial information for the class order group comprising CSL Limited, CSL International Pty Ltd, CSL Finance Pty Ltd, CSL Biotherapies Pty Ltd and Zenyth Therapeutics Pty Ltd (from its acquisition on 10 November 2006) is as follows: SUMMARISED INCOME STATEMENT
Profit before tax Income tax expense Net profit
Consolidated Group 2007 2006 $000 $000 319,293 (1,928)
243,272 (10,268)
317,365
233,004
306,016
434,383
96,401
58,975
-
57,374
BALANCE SHEET CURRENT ASSETS Cash and cash equivalent Trade and other receivables Current tax assets Inventories Total Current Assets
110,739
66,426
513,156
617,158
NON-CURRENT ASSETS Trade and other receivables Other financial assets Property, plant and equipment
188,705
429,080
1,604,074
1,259,318
323,771
268,881
Deferred tax assets
24,724
24,457
Intangible assets
72,802
20,000
Retirement benefit assets
7,887
1,840
Total Non-Current assets
2,221,963
2,003,576
TOTAL ASSETS
2,735,119
2,620,734
CURRENT LIABILITIES 140,696
109,361
Interest-bearing liabilities and borrowings
Trade and other payables
32,338
359,855
Current tax liabilities
24,123
24,801
Provisions
28,250
26,116
Deferred government grants Total Current Liabilities
100
371
225,507
520,504
NON-CURRENT LIABILITIES Trade and other payables Interest-bearing liabilities and borrowings Deferred tax liabilities
17,459
69,813
548,066
274,399
15,512
37,225
Provisions
5,681
5,223
Deferred government grants
4,961
4,093
591,679
390,753
Total Non-Current Liabilities TOTAL LIABILITIES NET ASSETS
817,186
911,257
1,917,933
1,709,477
1,023,941
994,101
EQUITY Contributed equity Reserves Retained earnings TOTAL EQUITY
43,885
24,133
850,107
691,243
1,917,933
1,709,477
48
CSL Limited and its controlled entities
Notes to the Financial Statements (continued) for the year ended 30 June 2007
Consolidated Group
33
2006 $000
Deed of Cross Guarantee (continued) Summary of movements in consolidated retained earnings of the closed group Retained earnings at beginning of the financial year
691,243
581,196
Net profit
317,365
233,004
Actuarial gain / (loss) on defined benefit plans, net of tax Dividends provided for or paid Retained earnings at the end of the financial year 34
2007 $000
4,033
1,437
(162,534)
(124,394)
850,107
691,243
Earnings Per Share Earnings used in calculating basic and dilutive earnings per share comprises: Profit attributable to ordinary shareholders
539,299
117,357
Number of shares 2007 Weighted average number of ordinary shares used in the calculation of basic earnings per share:
182,569,313
2006
182,025,674
Effect of dilutive securities: Senior Executive Share Ownership Plan options
446,227
697,530
Employee Performance Rights
775,569
587,904
Global Employee Share Plan Contingent Consideration Adjusted weighted average number of ordinary shares used in the calculation of diluted earnings per share:
16,497
29,299
-
7,098,615
183,807,606
190,439,022
Contingent consideration In the prior year, in accordance with AASB 133 Earnings Per Share, contingent consideration that could be settled in either cash or ordinary shares was required to be included in the calculation of diluted earnings per share where the effect is dilutive. This amount was cash settled in February 2007. Conversions, calls, subscription or issues after 30 June 2007 Since the end of the financial year, 20,800 performance rights have been exercised and shares issued as a result of the exercise. There have been no other conversions to, calls of, or subscriptions for ordinary shares or issues of potential ordinary shares since the reporting date and before the completion of this financial report.
49
CSL Limited and its controlled entities
Notes to the Financial Statements (continued) for the year ended 30 June 2007
35
Financial Instruments Objectives for holding derivative financial instruments The Group is primarily exposed to the risk of adverse movements in exchange rates and interest rates and accordingly uses derivative financial instruments to manage specifically identified risks as approved by the board of directors. The accounting policy applied by the Group in respect to derivative financial instruments is outlined in note 1(v). The purpose of specific derivative instruments that may be used by the Group is as follows: •
Foreign currency forward exchange contracts are purchased predominantly to hedge the foreign currency value of receivables and payables. Forward exchange contracts are purchased when considered necessary to create a desired hedge position; and
•
Interest rate swap agreements are used to convert variable interest rate exposures on certain debt to fixed rates. These swaps entitle the Group to receive, or oblige it to pay, the amounts, if any, by which actual interest payments on nominated loan amounts exceed or fall below specified interest amounts.
Interest Rate Risk Exposures The Group is, from time to time, exposed to interest rate risk through primary financial assets and liabilities. In accordance with the Group entities approved risk management policies, derivative financial instruments such as interest rate swaps are used to hedge interest rate risk exposures. As at 30 June 2007, no derivative financial instruments hedging interest rate risk were outstanding (2006: Nil). The following tables summarise interest rate risk for income-earning financial assets and interest-bearing financial liabilities, the effective interest rates as at balance date and the periods in which they reprice. Fixed interest rate maturing in Consolidated Group – June 2007
Floating rate (a)
1 year or less
Over 1 year to 5 years
Over 5 years
$’000
$’000
$’000
$’000
Noninterest bearing $’000
$’000
Average interest rate %
Total
Financial Assets Cash and cash equivalents
480,237
-
-
-
-
480,237
5.34%
Trade and other receivables
-
-
-
-
627,647
627,647
-
Other financial assets
-
-
-
-
14,402
14,402
-
480,237
-
-
-
642,049
1,122,286
Financial Liabilities Trade and other payables Bank loans – unsecured Deferred consideration–intangibles acquired Deferred consideration–subsidiary acquired Bank overdraft – unsecured
-
-
-
-
439,510
439,510
-
667,360
-
-
-
-
667,360
4.11%
-
14,197
-
-
-
14,197
2.97%
-
-
-
-
-
-
6,099
-
-
-
-
6,099
-
Senior unsecured notes
-
16,751
67,947
199,038
-
283,736
5.22%
Lease liabilities
-
1,920
7,959
26,486
-
36,365
6.35%
673,459
32,868
75,906
225,524
439,510
1,447,267
4.97%
50
CSL Limited and its controlled entities
Notes to the Financial Statements (continued) for the year ended 30 June 2007
35
Financial Instruments (continued) Fixed interest rate maturing in Consolidated Group – June 2006
Floating rate (a)
1 year or less
Over 1 year to 5 years
Over 5 years
$’000
$’000
$’000
$’000
Noninterest bearing $’000
$’000
Average interest rate %
Total
Financial Assets Cash and cash equivalents
753,694
-
-
-
-
753,694
4.75%
Trade and other receivables
-
-
-
-
611,352
611,352
-
Other financial assets
-
-
-
-
12,600
12,600
-
753,694
-
-
-
623,952
1,377,646
Financial Liabilities Trade and other payables Bank loans – unsecured Deferred consideration–intangibles acquired Deferred consideration–subsidiary acquired Bank overdraft – unsecured
-
-
-
-
388,979
388,979
-
486,922
-
-
-
-
486,922
2.59%
-
9,261
16,459
-
-
25,720
2.78%
-
80,228
82,262
-
-
162,490
4.35%
5,706
-
-
-
-
5,706
5.10%
Senior unsecured notes
-
18,993
75,713
241,764
-
336,470
5.22%
Lease liabilities
-
2,111
8,394
31,016
-
41,521
6.14%
492,628
110,593
182,828
272,780
388,979
1,447,808
(a) Floating interest rates represent the most recently determined rate applicable to the instrument at balance sheet date. The following tables summarise interest rate risk for income-earning financial assets and interest-bearing financial liabilities, the effective interest rates as at balance date and the periods in which they reprice. Fixed interest rate maturing in Noninterest bearing $’000
Average interest rate %
Floating rate (a)
1 year or less
Over 1 year to 5 years
Over 5 years
$’000
$’000
$’000
$’000
Cash and cash equivalents
-
-
-
-
-
-
-
Trade and other receivables
-
-
-
-
342,057
342,057
-
Other financial assets
-
-
-
-
1,341,701
1,341,701
-
-
-
-
-
1,683,758
1,683,758
513,731
Parent Company – June 2007
Total $’000
Financial Assets
Financial Liabilities Trade and other payables Bank Overdrafts – Unsecured
-
-
-
-
513,731
58,723
-
-
-
-
58,723
58,723
-
-
-
513,731
572,454
5.00%
51
CSL Limited and its controlled entities
Notes to the Financial Statements (continued) for the year ended 30 June 2007
35
Financial Instruments (continued) Fixed interest rate maturing in Parent Company – June 2006
Floating rate (a)
1 year or less
Over 1 year to 5 years
Over 5 years
$’000
$’000
$’000
$’000
Noninterest bearing $’000
$’000
Average interest rate %
5.62%
Total
Financial Assets Cash and cash equivalents
177,290
-
-
-
-
177,290
Trade and other receivables
-
-
-
-
110,851
110,851
-
Other financial assets
-
-
-
-
1,232,935
1,232,935
-
177,290
-
-
-
1,343,786
1,521,076
Financial Liabilities Trade and other payables
-
-
-
-
688,999
688,999
-
-
-
-
688,999
688,999
-
(a) Floating interest rates represent the most recently determined rate applicable to the instrument at balance sheet date.
Foreign Exchange Risk The Group enters into forward exchange contracts to buy and sell specified amounts of foreign currencies in the future at predetermined exchange rates. The objective is to match the contracts with committed future cash flows from sales and purchases in foreign currencies, to protect the Group against exchange rate movements. Contracts to buy and sell foreign currencies are entered into from time to time to offset purchase and sale obligations in order to maintain a desired hedge position. The Parent Company and other subsidiaries also enter into forward contracts to hedge foreign currency receivables from other entities within the group. These receivables are eliminated on consolidation, however, the hedges are in place to protect the Parent Company and other group subsidiaries from movements in exchange rates that would give rise to an income statement impact. Hedges of net investment in foreign subsidiaries Included in Interest Bearing Liabilities (refer note 15) as at 30 June 2007, are Unsecured Notes amounting to US$79.69m (2006: US$86.66m) and EUR 67.92m (2006: EUR 70.33m) that are designated as a hedge of the Group’s investment in ZLB Holdings Inc and CSL Behring Gmbh. A net foreign exchange gain of $22.1m (2006: loss of $8.5m) was recognised in equity on translation of these borrowings to Australian Dollars. Included in Interest Bearing Liabilities (refer note 15) as at 30 June 2007, are Bank Loans amounting to EUR 130m (2006: EUR 130m) that are designated as a hedge of the Group’s investment in CSL Behring GmbH. A net foreign exchange gain of $16.6m (2006: loss of $17.3m) was recognised in equity on translation of these borrowings to Australian Dollars. There was no ineffectiveness recognised on this hedging during the year. Sensitivity analysis In managing interest rate and currency risks the Group aims to reduce the impact of short-term fluctuations on the Group’s earnings. However, over the longer-term, permanent changes in foreign exchange and interest rates would give rise to a Group income statement impact. At 30 June 2007 it is estimated that a general movement of one percentage point in interest rates would change the Group’s profit after tax by approximately $3.7m (2006: $1.8m). This calculation is based on applying a 1% movement to the Group’s net debt at the year end, tax effected at the Group’s effective tax rate. It is estimated that a general movement of one percentage point in the value of the Australian Dollar against other currencies would change the Group’s profit after tax by approximately $5.1m for the year ended 30 June 2007 (2006: $3.3m). This calculation is based on changing the actual exchange rate of Australian Dollars to all other currencies during the year by 1% and applying these adjusted rates to the individual local currency profits generated in the current financial year. The forward exchange contracts have been included in this calculation.
52
CSL Limited and its controlled entities
Notes to the Financial Statements (continued) for the year ended 30 June 2007
35
Financial Instruments (continued) Fair values The fair values, together with the carrying amounts of Financial Asset and Financial Liabilities shown in the balance sheet, are as follows:
Consolidated Group
Financial Assets Cash and cash equivalents Trade and other receivables Other financial assets Derivatives Unlisted equity securities Managed financial assets
Financial Liabilities Bank overdraft Trade and other payables Interest bearing liabilities and borrowings Unsecured bank loans Unsecured notes Deferred cash settlement Finance leases Other financial liabilities Derivatives
Carrying amount 2007 $000
Fair Value 2007 $000
Carrying amount 2006 $000
Fair Value 2006 $000
480,237 627,647
480,237 627,647
753,694 611,352
753,694 611,352
7,913 6,489 1,122,286
7,913 6,489 1,122,286
4,728 7,872 1,377,646
4,728 7,872 1,377,646
6,099 439,510
6,099 439,510
5,706 388,979
5,706 388,979
667,360 283,736 14,197 36,365
667,360 286,025 14,197 36,365
486,922 336,470 188,210 41,521
486,922 338,462 188,210 41,521
1,447,267
1,449,556
1,447,808
1,449,800
Carrying amount 2007 $000
Fair Value 2007 $000
Carrying amount 2006 $000
Fair Value 2006 $000
342,057
342,057
177,290 110,851
177,290 110,851
7,913 349,970
7,913 349,970
4,728 292,869
4,728 292,869
58,723 513,731
58,723 513,731
688,999
688,999
-
-
-
-
572,454
572,454
688,999
688,999
There are no unrecognised gains or losses. Parent Company
Financial Assets Cash and cash equivalents Trade and other receivables Other financial assets Derivatives Unlisted equity securities Long term deposits Managed financial assets Financial Liabilities Bank overdraft Trade and other payables Interest bearing liabilities and borrowings Unsecured bank loans Unsecured notes Deferred cash settlement Finance leases Other financial liabilities Derivatives
There are no unrecognised gains or losses. The following methods and assumptions were used to determine the net fair values of financial assets and liabilities: Trade and other receivables / payables The carrying value of trade and other receivables/payables with a remaining life of less than one year is deemed to reflect its fair value. All other trade and other receivables/payables are discounted to determine fair values.
53
CSL Limited and its controlled entities
Notes to the Financial Statements (continued) for the year ended 30 June 2007
35
Financial Instruments (continued) Other financial assets – Derivatives Forward exchange contracts are either marked to market using listed market prices or by discounting the contractual forward price and deducting the current spot rate. Where discounted cash flows are used, estimated future cash flows are based on the director’s best estimate and the discount rate is a market related rate for a similar instrument at the balance sheet date. Other financial assets – other Fair value is estimated using valuation techniques including recent arm’s length transactions of like assets, discounted cash flow analysis and comparison to fair values of similar financial instruments. Interest bearing liabilities and borrowings Fair value is calculated based on the discounted expected future principal and interest cash flows. Interest bearing liabilities and borrowings – Finance leases The fair value is estimated as the present value of future cash flows, discounted at market interest rates for homogeneous lease agreements. The estimated fair values reflect change in interest rates.
Funding and liquidity risk Funding and liquidity risk is the risk that CSL cannot meet its financial commitments as and when they fall due. One form of this risk is credit spread risk which is the risk that in refinancing its debt, CSL may be exposed to an increased credit spread (the credit spread is the margin that must be paid over the equivalent government or risk free rate or swap rate). Another form of this risk is liquidity risk which is the risk of not being able to refinance debt obligations or meet other cash outflow obligations at any reasonable cost when required. Liquidity and re-financing risks are not significant for the Group, as CSL has a relatively low gearing level and strong cash flows, and also maintains surplus liquidity on the balance sheet. The focus on improving operational cash flow and maintaining a strong balance sheet mitigates refinancing and liquidity risks enabling the Group to actively manage its capital position. CSL’s objectives in managing its funding and liquidity risks include ensuring the Group can meet its financial commitments as and when they fall due, ensuring the Group has sufficient funds to achieve its working capital and investment objectives, ensuring that short-term liquidity, long-term liquidity and crisis liquidity requirements are effectively managed, minimising the cost of funding and maximising the return on any surplus funds through efficient cash management, and ensuring adequate flexibility in financing to balance short-term liquidity requirements and long-term core funding, and minimise refinancing risk. The below table shows the profile of financial liabilities: Consolidated Group – June 2007
1 year or less $’000
Maturing in Over 1 year to 5 years $’000
Over 5 years $’000
Total $’000
Financial Liabilities Trade and other payables
439,510
-
-
439,510
Bank loans – unsecured
118,178
549,182
-
667,360
Deferred consideration–intangibles acquired
14,197
-
-
14,197
Deferred consideration–subsidiary acquired
-
-
-
-
6,099
-
-
6,099
16,751
67,947
199,038
283,736
1,920
7,959
26,486
36,365
596,655
625,088
225,524
1,447,267
Bank overdraft – unsecured Senior unsecured notes Lease liabilities
Consolidated Group – June 2006 Financial Liabilities Trade and other payables
388,979
-
-
388,979
Bank loans – unsecured
347,333
139,589
-
486,922
Deferred consideration–intangibles acquired
9,261
16,459
-
25,720
Deferred consideration–subsidiary acquired
80,228
82,262
-
162,490
Bank overdraft – unsecured Senior unsecured notes Lease liabilities
5,706
-
-
5,706
18,993
75,713
241,764
336,470
2,111
8,394
31,016
41,521
852,611
322,417
272,780
1,447,808
54
CSL Limited and its controlled entities
Notes to the Financial Statements (continued) for the year ended 30 June 2007
35
Financial Instruments (continued) Funding and liquidity risk (continued) 1 year or less $’000
Parent Company – June 2007
Over 1 year to 5 years $’000
Over 5 years $’000
Total $’000
Financial Liabilities Trade and other payables Bank Overdrafts – Unsecured
513,731
-
-
58,723
-
-
513,731 58,723
572,454
-
-
572,454
688,999
-
-
688,999
-
-
-
-
688,999
-
-
688,999
Parent Company – June 2006 Financial Liabilities Trade and other payables Bank Overdrafts – Unsecured
Credit Risk Credit risk represents the extent of credit related losses that the Group may be subject to on amounts to be exchanged under financial instruments contracts or the amount receivable from trade and other debtors. Management has established policies to monitor and limit the exposure to credit risk on an on-going basis. Transactions involving derivative financial instruments are with counterparties with whom the Group has a signed netting agreement as well as sound credit ratings. Given their high credit ratings, management does not expect any counterparty to fail to meet its obligations. The Group minimises the credit risks associated with trade and other debtors by undertaking transactions with a large number of customers in various countries. The maximum exposure to credit risk at balance date is the carrying amount, net of any allowance for doubtful debts or impairment, of each financial asset, including derivative financial instruments, in the balance sheet. The credit quality of financial assets that are neither past due, nor impaired is as follows: For the year ended 30 June 2007 Cash and cash equivalents Trade and other receivables Other financial assets
Financial Institutions
Governments
Hospitals
Buying Groups
Other
Total
480,237
-
-
-
-
480,237
1,736
44,417
211,772
180,447
189,275
627,647
14,402
-
-
-
-
14,402
496,375
44,417
211,772
180,447
189,275
1,122,286
For the year ended 30 June 2006 Cash and cash equivalents Trade and other receivables Other financial assets
753,694
-
-
-
-
753,694
1,242
36,104
209,817
170,555
193,634
611,352
12,600
-
-
-
-
12,600
767,536
36,104
209,817
170,555
193,634
1,377,646
The Group has not renegotiated any material collection/repayment terms of any financial assets in the current financial year.
55
CSL Limited and its controlled entities
Notes to the Financial Statements (continued) for the year ended 30 June 2007
35
Financial Instruments (continued) Credit Risk (continued) An analysis of trade receivables that are past due and the allowance for doubtful debts is as follows: All other financial assets are less than 30 days overdue. For the year ended 30 June 2007: Not impaired $000
Impaired $000
Allowance for doubtful debts $000 -
Trade and other receivables: less than 30 days overdue
378,105
-
more than 30 but less than 90 days overdue
67,782
-
-
more than 90 days overdue
83,057
18,853
18,853
528,944
18,853
18,853
-
For the year ended 30 June 2006: Trade and other receivables: less than 30 days overdue
357,451
-
more than 30 but less than 90 days overdue
84,605
-
-
more than 90 days overdue
82,926
13,744
13,744
524,982
13,744
13,744
Financial assets are considered impaired where there is objective evidence that the Group will not be able to collect all amounts due according to the original trade and other receivable terms. Factors considered when determining if an impairment exists include aging and timing of expected receipts and the credit worthiness of counterparties. An allowance for doubtful debts is created for the difference between the assets carrying amount and the present value of estimated future cash flows. The Group’s trading terms do not generally include the requirement for customers to provide collateral as security for financial assets.
Capital Risk Management The Group and the Parent Company are not subject to any externally imposed capital requirements. The Group’s and the Parent Company’s objectives when managing capital are to safeguard their ability to continue as a going concern, so that they continue to provide returns for shareholders and to maintain an optimal capital structure to reduce the cost of capital. In order to maintain or adjust the capital structure, the Group may adjust the amount of dividends paid to shareholders, return capital to shareholders, issue new shares or sell assets to reduce debt.
56
CSL Limited and its controlled entities Directors’ Declaration
(1)
In the opinion of the Directors: (a) the financial report, and the additional disclosures included in the directors’ report designated as audited, of the company and of the Group are in accordance with the Corporations Act 2001, including: (i)
giving a true and fair view of the company’s and Group’s financial position as at 30 June 2007 and of their performance for the year ended on that date; and
(ii)
complying with Accounting Standards and Corporations Regulations 2001; and
(b) there are reasonable grounds to believe that the company will be able to pay its debts as and when they become due and payable. (2)
This declaration has been made after receiving the declarations required to be made to the directors in accordance with section 295A of the Corporations Act 2001 for the financial period ended 30 June 2007.
(3)
In the opinion of the Directors, as at the date of this declaration, there are reasonable grounds to believe that the members of the Closed Group identified in note 33 will be able to meet any obligations or liabilities to which they are or may become subject, by virtue of the Deed of Cross Guarantee dated 28 June 2007.
Made in accordance with a resolution of the directors.
Elizabeth A Alexander Chairman
Brian A McNamee Managing Director
Melbourne 22 August 2007
57
Independent audit report to members of CSL Limited We have audited the accompanying financial report of CSL Limited and the entities it controlled during the period, which comprises the income statement, balance sheet, statement of recognised income and expense, cash flow statement, a summary of significant accounting policies, other explanatory notes and the directors’ declaration for the year ended 30 June 2007. The company has disclosed information as required by paragraphs Aus 25.4 to Aus 25.7.2 of Accounting Standard 124 Related Party Disclosures (“remuneration disclosures”), under the heading “Remuneration Report” on pages 4 to 16 of the directors’ report, as permitted by Corporations Regulation 2M.6.04. Directors’ Responsibility for the Financial Report The directors of the company are responsible for the preparation and fair presentation of the financial report in accordance with the Australian Accounting Standards (including the Australian Accounting Interpretations) and the Corporations Act 2001. This responsibility includes establishing and maintaining internal controls relevant to the preparation and fair presentation of the financial report that is free from material misstatement, whether due to fraud or error; selecting and applying appropriate accounting policies; and making accounting estimates that are reasonable in the circumstances. In Note 1, the directors also state that the financial report, comprising the financial statements and notes thereto, complies with International Financial Reporting Standards. The directors are also responsible for the remuneration disclosures contained in the directors’ report. Auditor’s Responsibility Our responsibility is to express an opinion on the financial report based on our audit. We conducted our audit in accordance with Australian Auditing Standards. These Auditing Standards require that we comply with relevant ethical requirements relating to audit engagements and plan and perform the audit to obtain reasonable assurance whether the financial report is free from material misstatement and that the remuneration disclosures comply with Accounting Standard AASB 124 Related Party Disclosures. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial report. The procedures selected depend on our judgment, including the assessment of the risks of material misstatement of the financial report, whether due to fraud or error. In making those risk assessments, we consider internal controls relevant to the entity’s preparation and fair presentation of the financial report in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal controls. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by the directors, as well as evaluating the overall presentation of the financial report. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.
Liability limited by a scheme approved under Professional Standards Legislation.
Independence In conducting our audit we have met the independence requirements of the Corporations Act 2001. We have given to the directors of the company a written Auditor’s Independence Declaration, a copy of which is included in the directors’ report. In addition to our audit of the financial report and the remuneration disclosures, we were engaged to undertake the services disclosed in the notes to the financial statements. The provision of these services has not impaired our independence. Auditor’s Opinion In our opinion: 1. (a)
(b)
the financial report of CSL Limited is in accordance with: the Corporations Act 2001, including: (i)
giving a true and fair view of the financial position of CSL Limited and the consolidated entity at 30 June 2007 and of their performance for the year ended on that date; and
(ii)
complying with Australian Accounting Standards (including the Australian Accounting Interpretations); and
other mandatory financial reporting requirements in Australia.
2.
the financial report comprising the financial statements and notes thereto also complies with International Financial Reporting Standards as disclosed in Note 1.
3.
the remuneration disclosures that are contained on pages 4 to 16 of the directors’ report comply with Accounting Standard AASB 124 Related Party Disclosures.
Ernst & Young
Denis Thorn Partner Melbourne 22 August 2007
